<DOC>
[108 Senate Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:91748.wais]
S. Hrg. 108-347
CLEAR SKIES ACT OF 2003
=======================================================================
HEARINGS
before the
SUBCOMMITTEE ON CLEAN AIR, CLIMATE CHANGE,
AND NUCLEAR SAFETY
OF THE
COMMITTEE ON
ENVIRONMENT AND PUBLIC WORKS
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
ON
S. 485
A BILL TO AMEND THE CLEAR AIR ACT TO REDUCE AIR POLLUTION THROUGH
EXPANSION OF CAP AND TRADE PROGRAMS, TO PROVIDE ALTERNATIVE REGULATORY
CLASSIFICATION FOR UNITS SUBJECT TO THE CAP AND TRADE PROGRAM, AND FOR
OTHER PURPOSES
__________
APRIL 8, 2003
MAY 8, 2003
JUNE 5, 2003
__________
Printed for the use of the Committee on Environment and Public Works
91-748 U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2003
____________________________________________________________________________
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COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS
one hundred eighth congress
first session
JAMES M. INHOFE, Oklahoma, Chairman
JOHN W. WARNER, Virginia JAMES M. JEFFORDS, Vermont
CHRISTOPHER S. BOND, Missouri MAX BAUCUS, Montana
GEORGE V. VOINOVICH, Ohio HARRY REID, Nevada
MICHAEL D. CRAPO, Idaho BOB GRAHAM, Florida
LINCOLN CHAFEE, Rhode Island JOSEPH I. LIEBERMAN, Connecticut
JOHN CORNYN, Texaa BARBARA BOXER, California
LISA MURKOWSKI, Alaska RON WYDEN, Oregon
CRAIG THOMAS, Wyoming THOMAS R. CARPER, Delaware
WAYNE ALLARD, Colorado HILLARY RODHAM CLINTON, New York
Andrew Wheeler, Majority Staff Director
Ken Connolly, Minority Staff Director
------
Subcommittee on Clean Air, Climate Change, and Nuclear Safety
GEORGE V. VOINOVICH, Ohio, Chairman
MICHAEL D. CRAPO, Idaho THOMAS R. CARPER, Delaware
CHRISTOPHER S. BOND, Missouri JOSEPH I. LIEBERMAN, Connecticut
JOHN CORNYN, Texas HARRY REID, Nevada
CRAIG THOMAS, Wyoming HILLARY RODHAM CLINTON, New York
(ii)
C O N T E N T S
----------
Page
APRIL 8, 2003
OPENING STATEMENTS
Carper, Hon. Thomas R., U.S. Senator from the State of Delaware.. 34
Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma... 1
Jeffords, Hon. James M., U.S. Senator from the State of Vermont.. 15
Forum, weather and climate change, National Research Council. 17-33
Thomas, Hon. Craig, U.S. Senator from the State of Wyoming....... 36
Voinovich, Hon. George V., U.S. Senator from the State of Ohio... 3
WITNESSES
Colburn, Ken, Executive Director, Northeast States for
Coordinated Air Use Management (NESCAUM)....................... 57
Prepared statement, New Jersey DEP Secretary Bradley Campbell 115
Hawkins, David G., Climate Center Program Director, Natural
Resources Defense Council...................................... 59
Prepared statement........................................... 117
McCullough, Glenn, Jr., Chairman, Tennessee Valley Authority..... 49
Prepared statement........................................... 101
Responses to additional questions from:
Senator Jeffords......................................... 106
Senator Voinovich........................................ 105
Melewski, Bernard, Adirondack Council............................ 62
Prepared statement........................................... 138
Responses to additional questions from Senator Jeffords...... 145
Rogers, James, CEO and President, Cinergy Corporation, on behalf
of the Edison Electric Institute............................... 55
Prepared statement........................................... 109
Trisko, Eugene, United Mine Workers of America................... 60
Prepared statement........................................... 134
Responses to additional questions from:
Senator Jeffords......................................... 137
Senator Voinovich........................................ 136
Whitman, Hon. Christine Todd, Administrator, U.S. Environmental
Protection Agency.............................................. 38
Prepared statement........................................... 79
Responses to additional questions from:
Senator Jeffords......................................... 87
Senator Thomas........................................... 100
Senator Voinovich........................................ 99
------
MAY 8, 2003
OPENING STATEMENTS
Carper, Hon. Thomas R., U.S. Senator from the State of Delaware.. 179
Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma... 147
Jeffords, Hon. James M., U.S. Senator from the State of Vermont.. 153
Letters:
Americans for Clean Air.................................. 171
Clean Air Act, several organizations..................... 159
Report, Mercury MACT under the Clean Air Act, NESCAUM........ 154
Voinovich, Hon. George V., U.S. Senator from the State of Ohio... 151
Article, Akron Beacon Journal................................ 176
Report, Natural Gas 1999 Summary Report, National Petroleum
Council...................................................248-329
WITNESSES
Bluestein, Joel, president, Energy and Environmental Analysis,
Inc............................................................ 188
Prepared statement........................................... 228
Krimmel, James, president, Zaclon Chemical....................... 183
Prepared statement........................................... 207
McSlarrow, Hon. Kyle E., Deputy Secretary, U.S. Department of
Energy......................................................... 173
Prepared statement........................................... 201
Metz, Richard, co-executive officer, Unimark, L.L.C.............. 184
Prepared statement........................................... 208
Thumb, Steve, principal, Energy Ventures Incorporated............ 186
Prepared statement........................................... 214
ADDITIONAL MATERIAL
Report, Natural Gas 1999 Summary Report, National Petroleum
Council.......................................................248-329
Statement, American Chemistry Council............................ 225
------
JUNE 5, 2003
OPENING STATEMENTS
Carper, Hon. Thomas R., U.S. Senator from the State of Delaware.. 334
Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma... 336
Letter, Clear Skies Act, EPA Administrator Christine Todd
Whitman.................................................... 334
Lieberman, Hon. Joseph I., U.S. Senator from the State of
Connecticut.................................................... 366
Thomas, Hon. Craig, U.S. Senator from the State of Wyoming....... 337
Voinovich, Hon. George V., U.S. Senator from the State of Ohio... 331
WITNESSES
Benson, Steven A., senior research manager, Energy and
Environmental Center, University of North Dakota............... 353
Prepared statement........................................... 401
Brownstein, Mark S., director, Enterprise Strategy............... 377
Prepared statement........................................... 442
Bucher, Richard, W.L. Gore and Associates, Inc................... 355
Prepared statement........................................... 404
Cogan, Douglas G., deputy director of social issues, Investor
Responsibility Research Center................................. 375
Excerpt, Southern Co.'s Proxy Statement...................... 440
Prepared statement........................................... 421
Reports, IRRC Social Services..............................423, 431
Krozner, Randall S., member, Council of Economic Advisers........ 338
Prepared statement........................................... 389
McGinnis, Jim, managing director, Morgan Stanley................. 374
Prepared statement........................................... 419
Monroe, Larry S., program manager, Office of Pollution Control
Research, Southern Company..................................... 352
Prepared statement........................................... 391
Nappier, Hon. Denise, Treasurer, State of Connecticut............ 369
Prepared statement........................................... 408
Taylor, Wes, president of production, TXU Energy North America... 372
Prepared statement........................................... 415
Thorning, Margo, senior vice president and chief economist,
American Council for Capital Formation......................... 371
Prepared statement........................................... 409
THE CLEAR SKIES ACT OF 2003
----------
TUESDAY, APRIL 8, 2003
U.S. Senate,
Committee on Environment and Public Works,
Subcommittee on Clean Air, Climate Change and Nuclear
Safety,
Washington, DC.
The committee met, pursuant to notice, at 2:12 p.m. in room
406, Senate Dirksen Building, the Hon. George V. Voinovich
[chairman of the committee] presiding.
Present: Senators Jeffords, Inhofe, Thomas, Cornyn, and
Carper.
Senator Voinovich. The hearing will come to order.
I am very pleased that the chairman and ranking member of
the full committee are here today. Senator Inhofe, who is
chairman of the committee, has another meeting he has to
attend. He asked if we extend the courtesy of doing his opening
statement.
OPENING STATEMENT OF HON. JAMES M. INHOFE, U.S. SENATOR FROM
THE STATE OF OKLAHOMA
Senator Inhofe, I really thank you for being here. We look
forward to your opening statement.
Senator Inhofe. Thank you, Senator Voinovich. There is an
Armed Services meeting at the same time. There is a problem we
have been trying to resolve, unsuccessfully.
Thank you, Madame Administrator, for coming before us to
testify on the Clear Skies Act. I know that the signal that is
sent by your presence here shows how significant this is to the
Administration.
I would like to begin by complementing the Administration
for taking the Clean Air Act into the 21st Century. This
legislation cuts emissions of sulfur dioxide, nitrous oxide,
and mercury by 70 percent, which is the largest reduction ever
called for by any American President.
As you know, the Clean Air Act has resulted in tremendous
gains in improving the air quality in our Nation in the last 30
years. Lead, which was commonplace in gasoline, is virtually
gone from our air sheds. That has led to improvements in
control technologies from the auto industry, power plants, and
other industrial sectors.
As a result, U.S. manmade emissions have declined
dramatically for all six criteria pollutants. They declined by
29 percent. That is at a time when population has increased by
38 percent, the GDP has increased by 160 percent and the
vehicle miles traveled 143 percent. It is a success story.
The power industry has been a vital part of that success.
Since 1970, emission rates at coal-fired power plants for
sulfur dioxide and nitrogenous oxides have been cut by more
than half. Unfortunately, each additional turn of emissions
reduction in our Nation's States to reduce comes at an
increasingly expensive price tag.
The current Act is plagued by bureaucratic and sometimes
contradictory programs. Every new significant regulation is
greeted by endless rounds of litigation that do more for trial
lawyers than they do to clean up the air. A prime example of
that is the 1997 PM/ozone rule that still has not been
implemented because of the years of litigation.
Generators face an uncertain future as to what costs will
be imposed on them. Without certainty, generators will hesitate
to invest in significant capital necessary to build a new base-
load coal plant to meet our Nation's growing demand.
Two years ago, natural gas prices spiked and the Nation
witnessed a crisis that took place in California. They spiked
again this February going as high as $19.50. We should not
strain natural gas supplies beyond its ability to continue to
service residential consumers and industrial users.
Preserving our diverse fuel mix also promotes national
security. More than half of the Nation's electricity currently
from coal. Our Nation has been called the Saudi Arabia of coal.
As this chart shows, 85 percent of the ultimately recoverable
fuel reserves on a Btu basis are coal. That's simply too
important of a resource to push aside.
I was talking to Chairman McCullough of TVA right before
this meeting, and we both agree, we have to have all forms of
energy.
The only issue I remain concerned about is mercury. When
the President's announced his Clean Skies initiative, we were
told that the Phase 1 cap of 26 tons would be based on the
benefit of controls installed to meet the sulfur dioxide and
nitrogen oxide caps. It now appears that the 26 tons has been
redefined as a cost-effective level. My constituents tell me
that 26 tons is an unrealistic target and will cause fuel-
switching from coal to natural gas, which I find very
troubling. I believe we should return to basing the mercury
level on actual coal benefits.
I am pleased, however, that the bill does not attempt to
regulate carbon dioxide, which is not a pollutant under the
Clean Air Act. As you know, I am an avid proponent of taking
costs into consideration. To the extent that there is any
consensus in the climate change to date, it is that even the
draconian Kyoto Protocol would have no measurable effect on
global temperatures. In other words, regulating carbon dioxide
would bring no measurable benefits, at extreme costs.
The President's Clear Skies approach is the sensible
approach and will result in the most significant reforms. By
putting in place a cap and trade program based on the Acid Rain
Program--the most successful and efficient program in the Clean
Air Act Amendments of 1990--power plant operators will have the
flexibility to choose which plants should have which control
technologies, so that the system gets the biggest bang for the
environmental buck.
I look forward to your hearing today, Mr. Chairman.
[The prepared statement of Senator Inhofe follows:]
Statement of Hon. James M. Inhofe, U.S. Senator from the State of
Oklahoma
Thank you Madam Administrator for coming before us to testify on
the President's Clear Skies legislation. I appreciate your presence
here today and the signal it sends as to how important this legislation
is to the Administration.
I would like to begin by complimenting the Administration for
taking the Clean Air Act into the 21st century. This legislation cuts
emissions of sulfur dioxide, nitrogen oxides, and mercury by 70 percent
the biggest reductions ever called for by an American President.
As you know, the Clean Air Act has resulted in tremendous gains in
improving the air quality in our nation over the last 30 years. Lead,
which was commonplace in gasoline, is virtually gone from our airsheds.
The Act has led to improvements in control technologies from the auto
industry, power plants, and other industrial sectors. As a result, U.S.
man-made emissions have declined dramatically for all six criteria
pollutants by 29 percent since 1970.
The power industry has been a vital part of that success story.
Since 1970, emission rates at coal-fired power plants for sulfur
dioxide and nitrogen oxides have been cut by more than half.
Unfortunately, each additional ton of emissions reduction that our
nation seeks to reduce comes at an increasingly expensive price tag.
The current Act is plagued by bureaucratic and sometimes contradictory
programs, and every new significant regulation is greeted by endless
rounds of litigation that do more for trial lawyers than they do to
clean up the air. A prime example of that is the 1997 PM/ozone rule
that has still not been implemented because of years of litigation.
Generators face an uncertain future as to what costs will be
imposed on them. Without certainty, generators will hesitate to invest
the significant capital necessary to build a new base-load coal plant
to meet our nation's growing demand into the future. Two years ago,
natural gas prices spiked and the Nation witnessed the California
energy crisis. Prices spiked again this February, going as high as
$19.50. We should not strain natural gas supplies beyond its ability to
continue to service residential consumers and industrial users.
Preserving our diverse fuel mix also promotes national security. More
than half of the nation's electricity currently comes from coal. Our
country has been called the ``Saudi Arabia of coal.'' As this chart
shows, 85 percent of the ultimately recoverable fuel reserves on a Btu
basis are coal. That is simply too important a resource to push aside.
One issue I remain concerned about is mercury. When the President
announced his Clear Skies Initiative, we were told that the phase 1 cap
of 26 tons would be based on the co-benefit of controls installed to
meet the sulfur dioxide and nitrogen oxides caps. Now it appears the 26
tons has been redefined as a cost-effective level. My constituents tell
me that 26 tons is an unrealistic target and will cause fuel switching
from coal to natural gas, which I find very troubling. I believe we
should return to basing the mercury level on actual co-benefits.
I am pleased, however, that the bill does not attempt to regulate
carbon dioxide, which is not a pollutant under the Clean Air Act. As
you know, I am an avid proponent of taking costs into consideration. To
the extent that there is any consensus in the climate change debate, it
is that even the draconian Kyoto protocol would have no measurable
effect on global temperatures. In other words, regulating carbon
dioxide would bring no measurable benefit at extreme costs.
The President's Clear Skies approach is the sensible approach, and
will result in the most significant reforms. By putting in place a cap
and trade program based on the Acid Rain program the most successful
and efficient program in the Clean Air Act Amendments of 1990 power
plant operators will have the flexibility to choose which plants should
have which control technologies so that the system gets the biggest
bang for the environmental buck.
I look forward to hearing from you on this aggressive initiative
for reducing air emissions.
OPENING STATEMENT OF HON. GEORGE V. VOINOVICH, U.S. SENATOR
FROM THE STATE OF OHIO
Senator Voinovich. Thank you, Mr. Chairman.
I am probably going to have a little longer statement than
I ordinarily would, but this is an initial hearing on something
very, very important to the future of our country and to our
economy and to the environment. It is going to be the first
that we intend to have during this session of Congress on the
Clean Air Act. It is an issue that is critically important to
me and very important to my home State of Ohio, which is a
major manufacturing State. For several years now, this
committee has been grappling with the complex issue of how to
clean our air by reducing emissions without putting our economy
in a stranglehold. Today, we are here to discuss the Clear
Skies Act, S. 485, which is a proposal sent to us by President
Bush to reduce power plant emissions and protect our economy,
and improve our environment and public health.
As we hear testimony on Clear Skies from our three
distinguished panels, I think we need to keep in mind the
important context in which we consider this legislation. I
think so often here in Congress we get so wrapped up in the
weeds and the grass that we don't see the big picture. It is no
secret that our economy is struggling. One of the key reasons
our economy is sputtering is that we don't have an energy
policy. As I have often stated, we sorely need to develop a
long-overdue energy policy for our Nation. As a member of the
Energy Task Force, I will do everything I can to work for
passage of an energy bill that harmonizes the needs of our
economy and our environment this year. These are not competing
needs; a sustainable environment is critical to a strong
economy, and a sustainable economy is critical to providing the
funding necessary to improve the environment.
We need a policy that broadens our base of energy resources
to create stability, guarantee reasonable prices, and protect
America's security. It has to be a policy that will keep energy
affordable. Finally, it has to be a policy that won't cripple
the engines of commerce that fund the research that will yield
future environmental protection technologies.
Right now, about 86 percent of the electricity generated in
my State comes from coal-fired facilities. The chairman of the
committee has made it clear how much energy is produced in this
country from coal, about 50 percent. For generations, the use
of coal for electricity not only provided affordable and
reliable electricity for Ohio manufacturers, it helped to keep
the costs of natural gas down, as well. This combination of
affordable electricity and low-cost natural gas is absolutely
critical to the health of Ohio's manufacturing base and, just
as important, our Nation's manufacturing base.
The Clean Air Act, enacted in 1970 to protect and enhance
the quality of the Nation's air resources, has been extremely
successful in reducing emissions of pollutants. As these charts
show, since 1970, emissions of all criteria pollutants have
been reduced by 29 percent, despite the fact that energy use is
up 42 percent, electricity use has grown 159 percent, and the
Gross Domestic Product has grown 160 percent. However, the
current approach to regulation utilized by the EPA is plagued
with burdensome and overlapping regulations that are subject to
costly and time-consuming litigation and have become
unnecessarily costly.
There are now more than a dozen separate regulations on the
books for sulfur dioxide and nitrogen oxide alone, with
additional regulations around the corner. As this chart
illustrates, the regulatory process at EPA is long, complex and
costly. Further litigation over several of these regulations
has already delayed their implementation, forestalling the air
quality benefits that they were designed to achieve. This
patchwork of existing and soon-to-be-implemented regulations,
coupled with the delays bred by continuous litigation over
them--on both sides, for that matter--has created enormous
uncertainty for utilities, co-ops, and municipal generators.
This uncertainty has curtailed investments in technology that
would reduce emissions at existing plants, prevented numerous
new facilities from coming on line, and caused several
utilities to try to phaseout coal-based generation altogether
by fuel switching.
Fuel switching--changing from coal-based generation to
natural gas-based generation--I believe is a tremendous threat
to the economy of not just Ohio, but to the Nation as well.
There are currently over 5,000 power plants in the United
States that generate over 850,000 megawatt hours of electricity
annually. In 2002, 19 percent of our electricity was generated
by natural gas, as opposed to 50 percent generated by coal.
Reliance on natural gas for even this much generation has put a
tremendous strain on natural gas supplies and pushed prices on
available gas to record highs.
The President's National Energy Policy Task Force projected
that over 1,300 new power plants will need to be built to
satisfy America's energy needs over the next 20 years. Because
of the emissions limits and regulatory uncertainty triggered by
the Clean Air Act, the Department of Energy currently predicts
that over 90 percent of these new plants will be powered by
natural gas. Further, analysis by EIA and the EPA shows that a
large percentage of coal-fired plants are likely to be replaced
by natural gas-fired plants in the near future.
We do not have enough natural gas to power all of these new
facilities, and we do not have the capability to increase our
supply to meet this demand. Unless Congress develops a plan to
deal with this situation, we are looking at major natural gas
shortages, spikes in natural gas prices, and significant spikes
in electricity prices.
Shortages in natural gas supply--and the resultant increase
in natural gas prices--do not just affect utilities. Many other
industries rely on natural gas, and I think a lot of Americans
are not aware of this, such as the farming community, the steel
and metal industries as is pointed out on that charge, chemical
and polymer manufacturers. My chemical and polymer people in
the State of Ohio are in deep financial trouble today because
of the high cost of natural gas. They are completing with
people in the global marketplace that don't have those large
costs. It also impacts on the food processing industry.
It is not difficult to understand why a major shortage of
natural gas, coupled with skyrocketing prices for natural gas
and electricity, will ensure that many of our companies will no
longer be able to remain competitive in the global marketplace.
I recently met with manufacturers in my hometown of Cleveland,
about 50 of them, and I was shocked when two of them told me
that they were seriously considering moving their operations
overseas because of high energy prices.
Although high electricity prices would severely affect
businesses and their ability to compete in the global
marketplace, it will have an even more profound impact on low-
income families and the elderly, as some of you on this
committee have seen before. High energy costs impact most on
those that are least able to pay for it. This chart is based on
the Department of Energy statistics, and shows that low-income
families pay a disproportionate share of their income on
energy, which prevents that money from being used for other
necessities. The Centers for Disease Control states that more
of our elderly and children died from heat exposure between
1979 and 1999 than from all other natural disasters combined.
For several years now, I have been trying to work on a
bipartisan basis to head off this oncoming train wreck. During
the last Congress we held several hearings on the need to
harmonize our environmental and energy policies that
highlighted the need to promote energy development and
environmental protection. I worked with Senators Bingaman and
Murkowski on comprehensive energy legislation, and with Senator
Jeffords and Senator Carper to try to find a bipartisan Clean
Air reform last year. Unfortunately, we were not able to enact
comprehensive energy legislation on a bipartisan basis, and we
are no closer today to solving the problems than we were a year
ago, 2 years ago, or 3 years ago.
In order to defuse the time bomb of skyrocketing natural
gas and electricity prices that is sitting in our laps,
Congress must enact a comprehensive energy policy that will
increase our development of natural gas supplies and ensure
that we have a diverse fuel mix for electricity generation that
includes nuclear, renewables, natural gas, and coal. To get
there, the Senate must pass both comprehensive energy
legislation and also deal with this legislation that is before
us today.
In my opinion, the Clear Skies that you are here to testify
about will improve the Clean Air Act by providing greater
certainty that emissions are reduced, while providing a stable
regulatory environment that allows utilities to install
necessary pollution controls without the fear that those
controls will be obsolete before they are paid for. It will
result in cleaner air, less regulation and litigation, and
lower energy costs to manufacturers and American consumers.
Simply put, this legislation can provide tremendous benefits to
the environment, and is crucial to the long-term survival of
our economy and our manufacturing base.
I am not going to get into the details of the legislation
in terms of the tonnage that is going to be reduced, because I
am sure that you will mention that in your testimony. But I
will mention that the emissions cap and trading program in
Clear Skies is based on the proven success of the Acid Rain
Program contained in Title IV of the Clean Air Act, which to
date has been the most effective clean air program, having
reduced SO<INF>2</INF> emissions by 37 percent through 2000,
while saving hundreds of millions of dollars in compliance
costs.
The Clear Skies Program will provide power plants with the
flexibility to choose among various options for reducing
emissions that best fits their specific circumstances, while
saving over $1 billion in compliance costs.
Clear Skies also contains several provisions that reform
existing Clean Air Act programs to streamline the regulatory
process and help reduce the existing patchwork of regulations
and rules.
The flexibility of Clear Skies' market-based cap and trade
program and the certainty of its emissions reduction targets,
combined with these reforms, will ensure that real reductions
called for in this bill can be achieved without forcing
utilities to fuel-switch and without forcing electricity and
natural gas prices through the roof. Perhaps most importantly,
Clear Skies will help ensure that the least of our brothers and
sisters will not be forced to forego heating their homes, and
that our companies will not be forced to move overseas to
remain competitive in the global marketplace due to high
electricity and natural gas prices.
As I mentioned at the beginning of my remarks--and I
apologize for the length of them--this is the first of several
hearings that we intend to hold in this subcommittee on Clear
Skies. It is my intention to mark up Clear Skies at the
subcommittee level as quickly as possible, and I will push hard
to have the full committee report a bill to the floor and have
the Senate pass it during this Congress.
I want to thank our witnesses this afternoon. Administrator
Whitman, I appreciate your coming to present the President's
proposal to the subcommittee.
It is also a pleasure to have the Administrator testify
before us today, especially on a topic as important as this
one. I look forward to your testimony. I look forward to the
testimony of the other witnesses that will be before us today.
Senator Jeffords is the ranking member of the Environment
and Public Works Committee.
[The prepared statement of Senator Voinovich follows:]
Statement of Hon. George V. Voinovich, U.S. Senator from the State of
Ohio
This hearing is the first of several that we intend to have during
this Congress on reforms to the Clean Air Act. This is an issue that is
critically important to me and to my home State of Ohio, a major
manufacturing State. For several years now, this committee has been
grappling with the complex issue of how to clean our air by reducing
emissions without putting our economy in a stranglehold. Today, we are
here to discuss the Clear Skies Act (S. 485), which is a proposal sent
to us by President Bush to reduce power plant emissions and protect our
economy.
As we hear testimony on Clear Skies from our three distinguished
panels today, I think we need to keep in mind the important context in
which we consider this legislation. It is no secret that our economy is
struggling. One of the key reasons our economy is sputtering is that we
don't have an energy policy. As I have often stated, we sorely need to
develop a long overdue energy policy for our Nation. As a member of the
Energy Task Force, I will do everything I can to work for passage of an
energy bill that harmonizes the needs of our economy and our
environment this year. These are not competing needs. A sustainable
environment is critical to a strong economy, and a sustainable economy
is critical to providing the funding necessary to improve our
environment.
We need a policy that broadens our base of energy resources to
create stability, guarantee reasonable prices, and protect America's
security. It has to be a policy that will keep energy affordable.
Finally, it has to be a policy that won't cripple the engines of
commerce that fund the research that will yield future environmental
protection technologies.
Right now, about 86 percent of the electricity generated in Ohio
comes from coal-fired facilities. For generations, the use of coal for
electricity generation has not only provided affordable and reliable
electricity for Ohio manufacturers, it has helped to keep the costs of
natural gas down as well. This combination of affordable electricity
and low-cost natural gas is absolutely critical to the health of Ohio's
manufacturing base, and our Nation's manufacturing base.
The absence of a comprehensive national policy that harmonizes
energy production and environmental protection has led to an
unfortunate (and predictable) situation in which the rules and
regulations intended to protect our environment are threatening to
undermine our economy while failing to achieve significant
environmental goals.
The Clean Air Act, enacted in 1970 to protect and enhance the
quality of the nation's air resources, has been extremely successful in
reducing emissions of pollutants. As these charts show--Since 1970,
emissions of all criteria pollutants have been reduced by 29 percent
despite the fact that energy use is up 42 percent [CHART 1],
electricity use has grown 159 percent and Gross Domestic Product has
grown 158 percent [CHART 2]. However, the current approach to
regulation utilized by the EPA is plagued with burdensome and
overlapping regulations that are subject to costly and time-consuming
litigation and have become unnecessarily costly.
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
There are now more than a dozen separate regulations on the books
for sulfur dioxide (SO<INF>2</INF>) and nitrogen oxide (NOx) alone with
additional regulations around the corner. As this chart illustrates,
the regulatory process at EPA is long, complex and costly [CHART 3].
Further, litigation over several of these regulations has already
delayed their implementation, forestalling the air quality benefits
that they were designed to achieve. This patchwork of existing and
soon-to-be-implemented regulations, coupled with the delays bred by
continuous litigation over them, has created enormous uncertainty for
utilities, co-ops, and municipal generators. This uncertainty has
curtailed investments in technology that would reduce emissions at
existing plants, prevented numerous new facilities from coming online,
and caused several utilities to try to phase-out coal-based generation
altogether by fuel switching.
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Fuel switching changing from coal-based generation to natural gas-
based generation is a tremendous threat to the economy of not just
Ohio, but to the Nation as well. There are currently over 5,000 power
plants in the United States that generate over 850,000 megawatt hours
of electricity annually. In 2002, 19 percent of our electricity was
generated by natural gas as opposed to 50 percent generated by coal
[CHART 4]. Reliance on natural gas for even this much generation has
put a tremendous strain on natural gas supplies and pushed prices on
available gas to record high prices.
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The President's National Energy Policy Task Force projected that
over 1,300 new power plants will need to be built to satisfy America's
energy needs over the next 20 years. Because of the emissions limits
and regulatory uncertainty triggered by the Clean Air Act, the
Department of Energy currently predicts that over 90 percent of these
new plants will be powered by natural gas. Further, analysis by EIA and
the EPA shows that a large percentage of coal-fired plants are likely
to be replaced by natural gas-fired plants in the near future.
We do not have enough natural gas to power all of these new
facilities, and we do not have the capability to increase our supply to
meet this demand [CHART 5]. Unless Congress develops a plan to deal
with this situation, we are looking at major natural gas shortages,
spikes in natural gas prices, and spikes in electricity prices.
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Shortages in natural gas supply and the resultant increase in
natural gas prices do not just affect utilities. Many other industries
rely on natural gas such as the Farming Community, the Steel and Metal
Industries, Chemical and Polymers Manufacturers and Food Processing
Industry [CHART 6]. It is not difficult to understand why a major
shortage of natural gas coupled with skyrocketing prices for natural
gas and electricity will ensure that many of our companies will no
longer be able to remain competitive in the global marketplace. I
recently met with a group of Manufacturers in my hometown of Cleveland.
I was shocked when two of them told me that they were seriously
considering moving their operations overseas because of high energy
prices.
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Although high electricity prices would severely affect businesses
and their ability to compete in the global marketplace, it will have an
even more profound impact on low-income families and the elderly.
Everyday, many Americans are forced to make choices between paying for
electricity or food and other essentials such as medicine when energy
prices are high. This chart, based on Department of Energy statistics
shows that low-income families pay a disproportionate share of their
income on energy which prevents that money from being used for other
necessities [CHART 7]. The Center for Disease Control (CDC) states that
more of our elderly and children die from heat exposure (8,015 between
1979 and 1999) than from all other natural disasters combined. The CDC
also claims that air conditioning is the No. 1 preventative factor
against heat exposure.
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For several years now, I have been trying to work on a bipartisan
basis to head off this oncoming train wreck. During the last Congress,
I held several hearings on the need to harmonize our environmental and
energy policies that highlighted the need to promote energy development
and environmental protection. I worked with Senators Bingaman and
(Frank) Murkowski on comprehensive energy legislation, and with Senator
Jeffords and Senator Carper to try to find a bipartisan compromise on
Clean Air Act reform. Unfortunately, we were not able to enact
comprehensive energy legislation or reach a bipartisan Clean Air
agreement, and we are no closer to solving these very real problems.
In order to defuse the time bomb of skyrocketing natural gas and
electricity prices that is sitting in our lap, Congress must enact a
comprehensive energy policy that will increase our development of
natural gas supplies and ensure that we have a diverse fuel mix for
electricity generation that includes nuclear, renewables, natural gas
and coal. To get there, the Senate must pass both comprehensive energy
legislation that promotes domestic natural gas development and multi-
pollutant legislation that will streamline the regulatory process,
maintain the diversity of our fuel mix and achieve greater emissions
cuts to protect our environment.
While the task of passing comprehensive energy legislation is
underway over in the Energy Committee and I commend Chairman Domenci
for the work he doing on the bill--the task of passing multi-pollutant
legislation falls on us here in this committee.
Earlier this year, in order to move multi-pollutant legislation
that will protect both our environment and our economy through the
committee, Chairman Inhofe and I introduced the Clear Skies Act (S.
485) by request. This bill--which calls for 70 percent reductions in
SO<INF>2</INF>, NOx, and Mercury--will deliver far-reaching benefits
and maintain energy diversity by expanding and strengthening a proven
mandatory, market-based approach to reducing emissions.
The Clear Skies Act will improve the Clean Air Act by providing
greater certainty that emissions are reduced while providing a stable
regulatory environment that allows utilities to install necessary
pollution controls without the fear that those controls will be
obsolete before they are paid-for. It will result in cleaner air, less
regulation and litigation, and lower energy costs to manufacturers and
American consumers. Simply put, this legislation will provide
tremendous benefits to the environment and is crucial to the long-term
survival of our economy and our manufacturing base.
Specifically, the Clear Skies Act would establish federally
enforceable emissions limits for SO<INF>2</INF>, NOx and Mercury. For
SO<INF>2</INF>, Clear Skies sets a Phase I cap of 4.5 million tons in
2010 and a Phase II cap of 3 million tons in 2018 down from 11.2
million tons in 2000. For NOx, Clear Skies sets a Phase I cap of 2.1
million tons in 2008 and a Phase II cap of 1.7 million tons in 2018
down from 5.1 million tons in 2000. For Mercury, Clear Skies sets a
Phase I cap of 26 tons in 2010 and Phase II cap of 15 tons in 2018 down
from 48 tons in 2000. These reductions are a not only robust a 73
percent reduction for SO<INF>2</INF>, a 67 percent reduction for NOx,
and a 69 percent reduction for Mercury, they would constitute the
largest Clean Air Act emission reduction targets ever requested by a
President.
The emissions cap and trading program in Clear Skies is based on
the proven success of the acid rain program contained in Title IV of
the Clean Air Act--which to date has been the most effective clean air
program, having reduced SO<INF>2</INF> emissions by 37 percent through
2000 while saving hundreds of millions of dollars in compliance costs.
The Clear Skies program will provide power plants with the flexibility
to choose among various options for reducing emissions that best fits
their specific circumstances while saving over $1 billion annually in
compliance costs.
Clear Skies also contains several provisions that reform existing
Clean Air Act programs to streamline the regulatory process and help
reduce the existing patchwork of regulations and rules.
The flexibility of the Clear Skies' market-based cap and trade
program and the certainty of its emissions reduction targets--combined
with these reforms--will ensure that the real reductions called for in
this bill can be achieved without forcing utilities to fuel switch and
without forcing electricity and natural gas prices through the roof.
Perhaps most importantly, Clear Skies will help ensure that the least
of our brothers and sisters will not be forced to forego heating their
homes--and that our companies will not be forced to move overseas to
remain competitive in the global market due to sky-high electricity and
natural gas prices.
As I mentioned at the beginning of my remarks, this is the first of
several hearings that we intend to hold in this Subcommittee on Clear
Skies. It is my intention to mark-up Clear Skies at the Subcommittee
level as quickly as possible and I will push hard to have the full
committee report a bill to the floor--and to have the Senate pass it
this Congress.
I want to thank our first witness this afternoon, Administrator
Whitman, for coming to present President Bush's proposal to the
Subcommittee. It is always a pleasure to have the Administrator testify
before us especially on a topic as important as this one.
I look forward also to the testimony of our other witnesses and to
working with the members of this Subcommittee as we move forward on
this vital legislation.
Senator Voinovich. Senator Jeffords?
OPENING STATEMENT OF HON. JAMES M. JEFFORDS, U.S. SENATOR FROM
THE STATE OF VERMONT
Senator Jeffords. Thank you, Senator. I am glad you are
continuing to pursue multi-pollutant legislation. That's one of
my favorite topics, as you well know.
Also, I am pleased that the Administrator has come by today
to listen to us.
As most people know, I am a sponsor of S. 366, the Clean
Power Act of 2003. This pollutant legislation has 19 other
cosponsors, both Democrats and Republicans. Our bill is nearly
identical to the one reported out by the committee last year.
This bill basically passed the committee last year. Its
ambitious deadlines show that we want to reduce emissions of
core pollutants quickly to protect human health and the
environment. The Administration's plan, Clear Skies, takes a
different much more leisurely approach toward a few of our
goals. This is troubling to me, since every moment of delay
means more people that die prematurely due to power plant
pollution. More acid rain will fall, and more mercury will spew
into our lakes and streams, threatening children's health.
The often-quoted and peer-reviewed study of Abt Associates
says that power plant pollution, mainly fin particulate matter,
is causing approximately 30,000 premature deaths annually.
That's happening now, and I hope everyone here considers that a
crisis.
And yet, the Administration has not acted to regulate
sources of this pollution under its broad authority granted by
the existing Clean Air Act. One might even say that the
Administration is deregulating these sources through the so-
called NSR reforms and increasing pollution.
If the Administration were to act aggressively under the
Clean Air Act's present authorities, according to the scenario
that EPA presented to industry in the fall of 2001, then the
bars in yellow on this chart are the kinds of emission levels
we would see. Clearly, these levels are substantially lower
than those for the pollutants under Clear Skies.
If the Adminstration were to put forward the original EPA
``straw proposal''--that was the agency's interpretation in
2001 of what levels of reductions are necessary and feasible to
protect public health--the numbers would be much lower than
Clear Skies, almost down to the yellow levels you see on the
chart.
Instead of these two decent options, the Administration has
put forward Clear Skies. Apparently, the only way to make Clear
Skies' levels and timing look good is to assume a ``Rip Van
Winkle'' approach at EPA. That means that EPA would have to be
essentially asleep at the switch for the next decade and not
regulate any further.
We know that is ridiculous at best, given the millions of
people who are and will be living in areas with unhealthy air.
Indeed, today's utility witness lays out the numerous
regulations which will require emission reductions from power
plants over the next decade and longer.
And finally, it is ``whistling past the graveyard'' for the
Administration to continue ignoring the need to control
greenhouse gas emissions. As global warming skeptics have told
us, increasing emissions increases the risk of global change. I
ask that a summary of a forum on weather and climate at the
National Academy of Sciences be included in the record.
[The referenced document follows:]
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Senator Jeffords. Omitting carbon dioxide from a long-term
emissions control program; that will drive investments makes no
sense from a financial or an environmental perspective. As the
CEO from Cinergy will tell us, and has told us in the past,
certainty is important. The Administration has not provided
certainty on carbon.
In its legislation the Administration asks Congress to do
away with or downgrade the numerous programs that Congress
established to protect local and regional air quality and to
push control technology forward. This includes hurting States'
ability to stop interstate pollution, cutting provisions to
protect air quality and visibility in the National Parks, and
delaying air toxics reduction efforts.
In this legislation the Administration has asked Congress
to extend attainment deadlines beyond current law, so people
will breath unhealthy and smoggy air even longer. They want us
to adopt a host of weak emissions performance standards, even
weaker than current practice. These are supposed to take the
place of the New Source Review requirements and are unrelated
to local air quality needs.
In exchange for all of this deregulation, we will get caps
that are not adequate or timely enough to save all the saveable
lives and protect the environment, and these caps will not
stimulate the technological development that will allow us to
use our vast coal resources safely and effectively.
Obviously, this exchange isn't acceptable at all of the
supporters of my bill, and Clear Skies will not become law.
But, as I have said several times over the last 2 years, I am
more than happy to collaborate with the Administration and all
of the interested parties to move comprehensive 4-pollutant or
3.5-pollutant legislation. It could become law quickly with
Administration support; so far, however, my offer of compromise
has been treated with silence or disdain.
Finally, on an unrelated note, while the Administration is
here, I want to say that I appreciate the EPA's efforts to take
immediate emergency action at the Elizabeth Mine Superfund site
in Vermont, in the agency's words to address ``the potential
for a slope failure and tailing flood wave'' of up to 1 million
cubic yards if contaminated mill tailings. That is
unacceptable; they are willing to try to help us with it, and
we appreciate it.
Elizabeth Mine is one of only seven sites on the National
Priorities List that received no funds in fiscal year 2002. Had
the Administration fully funded the Superfund Program and
renewed the Superfund fees, the current emergency could likely
have been avoided.
I look forward to working with you and your staff to ensure
that we don't face a similar emergency during next year's
spring thaw.
Thank you, Mr. Chairman.
Senator Voinovich. Thank you, Senator Jeffords.
Now I would like to call on the ranking member of the
subcommittee, Senator Carper.
OPENING STATEMENT OF HON. THOMAS R. CARPER, U.S. SENATOR FROM
THE STATE OF DELAWARE
Senator Carper. Mr. Chairman, thank you for holding this
hearing today.
I want to welcome Governor Whitman to head up this hearing,
and all the other witnesses. We are glad you are with us on
this important issue.
I want to thank our chairman for holding this hearing
today. He has had a full day of providing leadership on
hearings. This one is important and near and dear to his heart,
and this one is certainly near and dear to mine.
To follow up on what Senator Jeffords said, I think there
is room for an alternative here. There is room for a third way,
and my hope is that we can work really hard on both sides of
the aisle with the Administration to find the third way, which
would include 4-P. We will see how it unfolds.
I think this is going to be the beginning of a productive
discussion on how we can address our shared goals of continued
progress toward cleaner air. Power plants are just one element
of that effort, and what we do to address them will set a model
for the debate on other sources of pollution, such as cars, as
well as debate in other countries, including India and China,
who are watching our efforts closely.
I expect that today we will hear debated questions about
the levels of pollution reductions and deadlines established in
the various bills. I will make it clear that I believe that the
Clear Skies bill just doesn't go far enough. It doesn't go fast
enough to be considered a truly serious effort.
On the other hand, we need to be sure that we here in this
committee--and here in the Senate, and here in the Congress--
don't set standards that are so tight or so fast that they are
unacheivable by any significant portion of the industry. Along
with Senators Judd Gregg and Lincoln Chafee, I have developed a
4-P proposal, a Clean Air Planning Act that we should consider,
as I said earlier, a middle-ground-approach, a centrist
approach, and we are going to be introducing it tomorrow.
Today's hearing, though is about the President's plan. I am
not going to try to steal any spotlight--I'm tempted to, but
I'm not going to try to steal any spotlight to describe our
bipartisan alternative. However, I am convinced that the
results that would occur if Clear Skies were to pass would be a
step backward from our current laws and would ultimately lead
to higher costs for all of us because of unnecessary delays. I
am also convinced that we can do better, and that's why we have
developed our approach. I believe it is decompromise.
A critical issue is how a multipollutant proposal, whether
it is 3 or 4, will impact the diversity of fuel used to
generate electricity in this country. Today, a bit more than 52
percent of our electricity is generated by coal; approximately
16 percent from natural gas; roughly 22 percent from nuclear,
with the remainder from hydropower or renewables. Twenty years
from now, I believe we an--and I believe we should--have a
similarly diverse fuel supply. We could achieve such a diverse
position and still address CO<INF>2</INF>. We can have a 4-P
bill, such as our Clean Air Planning Act, and still enjoy the
benefits that our domestic coal supply offers.
Analysis that I have seen suggests that the Clean Air
Planning Act would result in a similar generation of fuel mix
by 2020, with only a slightly larger shift to natural gas from
coal, maybe 3 percent, under our Clean Air Planning Act, when
compared to Clear Skies in 2020. And this is with controls on
carbon, and timelines are 5 years sooner than those proposed by
the Administration.
Well, this is an important debate, as we all know. I
suggest that we agree, maybe from the outset, on four
principles to help guide our debate, and here they are.
No. 1, 4 is better than 3. A comprehensive 4 emissions
strategy that includes carbon reductions will provide
regulatory certainty and offer the greatest environmental and
economic benefits.
No. 2, markets do work. Cap and trade-based emission
standards provide the maximum incentive to achieve cleaner
power.
No. 3, stairs are better than cliffs. Prompt but gradual
reductions through multiphase or declining caps are more
desireable than single-phased cuts.
And No. 4, eliminate redundancy only when emission
reductions are secured. Existing regulatory programs, such as
New Source Review, will need some modernization on my view in
light of tight emission caps that we should put in place.
Thanks, Mr. Chairman.
Senator Voinovich. Thank you.
Senator Thomas?
OPENING STATEMENT OF HON. CRAIG THOMAS, U.S. SENATOR FROM THE
STATE OF WYOMING
Senator Thomas. Thank you, Mr. Chairman.
I will try to be fairly brief, Administrator, so that you
will get a chance, perhaps, to talk.
The issue of clean air is of great importance to all of us,
of course, and I am very grateful for the proposal that you
have brought forth, and the Administration. I think it is a
move in the right direction.
I want to talk a little bit about the fact that it affects
us differently in different parts of the country. I spent this
morning on the Energy Committee, talking about an energy
policy; and all of these things kind of go together, as a
matter of fact. Wyoming has some of the cleanest air and the
world's most vast resources of coal and natural gas, as well as
other resources; as you know, the quality issues differ in the
west than they do in the east. In part because of our abundance
of low-sulfur coal, we don't have acid rain. We don't have
ozone nonattainment areas due to power plants. We don't have
fine particle problems. We do have an issue with visibility.
This has been addressed on a regionwide basis through the WRAP
program, which puts in place a program to reduce SO<INF>2</INF>
emissions over the next 15 years. I am pleased that Clear Skies
embraces the WRAP program for the west.
I am also pleased that the Administration endorses a
separate western NOx program so that costly controls that may
be necessary to address health risks of ozone nonattainment in
the east are not mandated in the west.
I wanted to discuss how to address the additions of
Oklahoma and Kansas to the western NOx zone. When the change
was made in the Clear Skies legislation this year,a the NOx
allowances for Kansas and Oklahoma were left in the east. This
action has produced an unfair situation for us in the west, and
I think we need to correct the map.
The west also has a difference from the east and the
midwest with respect to mercury. The mercury emitted from sub-
bituminous coal and lignite that we burn in the west is quite
small in volume and different in form than the mercury
emissions produced when eastern bituminous coal is burned.
Western mercury emissions aren't typically captured in
scrubbers, so there is little ``co-benefit'' in reducing
emissions of mercury by installing scrubbers for
SO<INF>2</INF>. We must determine how Clear Skies can
accommodate the unique circumstances associated with mercury
emissions from western coal.
It is my understanding that EPA modeling projects that
power plants will reduce mercury emissions by switching from
sub-bituminous coal to bituminous coal. I am deeply concerned
about that as a dramatic change, and don't believe it is in the
best interest of energy and environmental policies.
Currently, generation of electricity from coal represents
more than 50 percent, as we have heard. Making massive changes
in the regulatory structure would have a devastating impact on
the Nation's reliable energy. Also, major fuel switching to
natural gas has occurred, and experts agree that we will have a
shortage.
I think we have to look at the big picture where we do what
we have to, and be realistic about where we can be in the next
20 years.
So thank you for being here, and I look forward to working
with you.
[The prepared statement of Senator Thomas follows:]
Statement of Hon. Craig Thomas, U.S. Senator from the State of Wyoming
Mr. Chairman, thank you for holding this hearing today on the Clear
Skies proposal. The issue of clean air is of great importance to the
entire nation, but particularly to the West and my State of Wyoming
where we have some the nation's cleanest air and world-class reserves
of coal and natural gas, as well as wind resources. As you know, air
quality issues are different in the West than they are in the East. In
part, because of our abundance of low-sulfur coal, we don't have acid
rain. We don't have ozone non-attainment areas due to power plants
(Southern California and Phoenix have a problem due to mobile sources).
And, we don't have fine particle problems.
We do, however, have an issue with visibility, and we have
addressed that on a region-wide basis through the Western Regional Air
Partnership (WRAP), which has put in place a program to reduce
SO<INF>2</INF> emissions over the next 15 years. I was pleased to see
the Clear Skies Act embraces the WRAP program for SO<INF>2</INF> in the
West. I am also pleased that the Administration endorses a separate
Western NOx program, so that costly controls that may be necessary to
address health risks of ozone nonattainment in the East are not
mandated in the West.
On that note, I wanted to discuss how to address the additions of
Oklahoma and Kansas to the Western NOx zone.. When the change was made
in the Clear Skies legislation this year, the NOx allowances for Kansas
and Oklahoma were left in the East. This action has produced an unfair
situation for us in the West.
In addition to being different with respect to SO<INF>2</INF> and
NOx, the West also is different from the East and Midwest with respect
to mercury. The mercury emitted from sub-bituminous coal and the
lignite that we burn in the West is quite small in volume, and
different in form from the mercury emissions produced when Eastern
bituminous coal is burned. Western mercury emissions aren't typically
captured in scrubbers, so there is little ``co-benefit'' in reduced
emissions of mercury from installing scrubbers to reduce
SO<INF>2</INF>. We must determine how Clear Skies can accommodate the
unique circumstances associated with mercury emissions from Western
coal.
It is my understanding that EPA modeling now confirms that reducing
mercury emissions from the 48 tons or so that the Nation emits today,
to 26 tons in 2010, will require far more than application of controls
to meet SO<INF>2</INF> and NOx requirements. Instead, EPA modeling
projects that power plants will reduce mercury emissions by switching
from sub-bituminous coal to bituminous coal.
I am deeply concerned about this dramatic change and do not believe
this is in the best interest of our energy and environmental policies.
Currently, generation of electricity from coal represents more than 50
percent. Making massive shifts in our regulatory structure could have
devastating impacts on our nation's most reliable energy source.
Already, major fuel switching to natural gas has occurred and experts
agree that we will have a shortage. I think we must look at the big
picture and look at where we want to be, and realistically where we can
be, in 20 years.
Thank you and I welcome the witnesses and the Administrator's
comments on these issues.
Senator Voinovich. Senator Cornyn?
Senator Cornyn. Mr. Chairman, in the interests of time and
getting to the questions, I will yield my time.
Senator Voinovich. I just want to note that at the
beginning, Administrator Whitman will take one question from
the chairman and one from Senator Carper, and after that she is
going to leave and Assistant Administrator Holmstead will
remain to answer any other questions that the subcommittee has.
We are very happy to have you here with us. Thank you for
serving our country.
STATEMENT OF HON. CHRISTINE TODD WHITMAN, ADMINISTRATOR, UNITED
STATES ENVIRONMENTAL PROTECTION AGENCY ACCOMPANIED BY: JEFFREY
HOLMSTEAD, ASSISTANT ADMINISTRATOR FOR AIR AND RADIATION,
ENVIRONMENTAL PROTECTION AGENCY
Administrator Whitman. Members of the committee, I am very
happy to be here at what is the beginning, I believe, of an
extraordinarily important process to address the President's
Clear Skies Act of 2003, legislation that will provide cleaner
air for all Americans. I do hope that this is the beginning of
the process that will enable us to see a 3-pollutant bill
enacted this year.
Since the Clean Air Act was enacted in 1970, we've gone a
long way in reversing the environmental damage that decades of
unchecked pollution had inflicted on our environment. In that
timeframe, as you have heard several times, we have reduced
emissions of six key pollutants by 25 percent, while in fact
our economy has grown by 160 percent.
While laudable, there is still more that needs to be done.
Children suffer from asthma at alarmingly high rates. Many of
our National Parks are shrouded in a murky haze, and our
environment continues to endure damage from poor air quality,
even as we have continued to vigorously enforce the Clean Air
Act.
To address this situation, President Bush has proposed
Clear Skies, the most significant improvement to the Clean Air
Act in over a decade, and the most important emission
reductions proposed by any President for the electric utility
sector. Clear Skies is a powerful new tool for the next
generation of air quality, building on the success of the Clean
Air Act, while recognizing its original command and control
methodology might not be the most efficient way to continue to
improve our air. Indeed, it is important to note that Clear
Skies is based on the most successful program in over a decade
to address air quality, the Acid Rain Trading Program, which
was created in 1990 as part of the amendments to the Clean Air
Act. The Acid Rain Program had its genesis in the innovative
idea that harnessing the power of the market could reap
impressive environmental gains. By utilizing this pioneering
cap and trade strategy, the Acid Rain Program has achieved
nearly universal compliance and has cost far less to implement
than traditional regulatory approaches, and has already reduced
emissions levels to lower than those that were projected when
the Act was passed.
Far from providing a regulatory escape for old power
plants, Clear Skies is aimed directly at the previously
grandfathered plants. It would result in almost all facilities
of over 300 megawatts--and many smaller ones, as well--taking
action onsite, something that we have not been able to achieve
under the Clean Air Act to date.
Said another way, when Clear Skies is fully implemented, 85
percent of the coal-generated power will be from facilities
that will have advanced pollution control technology in both
the east and the west. Clear Skies will set a uniform objective
standard for mandatory reductions of 70 percent from 2000
levels of the three most dangerous air pollutants emitted by
the power utility: sulfur dioxide, nitrogen oxide, and mercury.
Although it sets the goals, Clear Skies does not regulate
the path to meeting those goals. This flexibility enables
States and facilities to pursue the most cost-effective
approach to cleaning the air, and helps ensure our ability as a
Nation to respond quickly and efficiently to changes in the
energy marketplace. By moving away from simple command and
control toward a more market-based approach, we will remove 35
million more tons of SOx, NOx and mercury from the air over the
first 10 years of the Clear Skies Act than what the current
Clean Air Act would achieve in the same timeframe.
While the Clean Air Act enables EPA to regulate these three
pollutants through the rulemaking process, unlike Clear Skies,
there is no mandatory cap and no guarantees that emissions will
reach those lower beneficial levels set by Clear Skies.
When fully implemented, Clear Skies would result in $96
billion in environmental and health benefits each year,
benefits that include virtually eliminating the chronic acidity
in northeastern lakes; improving visibility in our National
Parks; avoiding 12,000 premature deaths; and preventing 15
million fewer days when sufferers of respiratory illnesses are
unable to carry out their normal daily activities because of
poor air quality, according to our analysis last year.
Clear Skies is not a change in direction, but a course
adjustment. While our goal of cleaner air remains fixed, we
believe that over 30 years of experience and the lessons that
we have learned from addressing air pollution should be
reflected as we move forward. Our environment isn't static. Our
efforts to improve it shouldn't be static, either.
With or without Clear Skies, there are hundreds of counties
all across America that will have to meet the Clean Air Act
fine particulate and ozone standards. Either we move forward
with clear legislative guidance, or face the uncertainty of
regulation, rulemaking, and litigation. We believe that Clear
Skies is the far preferable path.
In the President's State of the Union address, he stated
that Clear Skies was one of his top domestic priorities, and I
can attest to that fact. Every time that I have met with him
subsequent to that, as recently as a few weeks ago, he has
asked me about the status of this legislation.
With strong backing from the President, the time to enact
this legislation is now. From improving our air to increasing
energy security to protecting human health, Clear Skies is a
clear win for the American people. In the coming months I look
forward to working with you to pass this legislation and begin
reaping the environmental and health benefits that it will
secure.
I thank you again for the opportunity to appear, and would
be happy to answer questions in the time allotted.
Senator Voinovich. Thank you very much for your testimony.
One of the things I would like to see if your EPA could
produce would be a list of the lawsuits on both sides of the
Clean Air Act, and how they have impacted on moving to improve
air and public health, and utilities unwillingness to move
forward with improvements to make their facilities more
efficient and to provide more reasonable energy.
Administrator Whitman. We can certainly provide that.
Senator Voinovich. I think one of the issues here is that
the current law has really tied us up in a cobweb of litigation
that is not really making any improvement in the public health
of this country or improving our air quality. We are nibbling
away at it. There are critics that say that Clear Skies is not
as environmentally protective as future Clean Air requirements
would be, and that in fact it would roll back the Clean Air
Act--as one of the Senators said, put us in a ``Rip Van
Winkle'' environment.
It seems to me that one of the major advantages of Clear
Skies is that it provides both regulatory and environmental
certainty; that is, the fact that significant emissions are
locked into statutory deadlines that cannot be circumvented or
delayed the way that most requirements are now being delayed.
I would like you to comment on that allegation, that Clear
Skies would roll back the current Clean Air Act.
Administrator Whitman. Well, obviously, Senator, we don't
agree with that. As you stated, putting a mandatory cap on the
three emissions, making it clear what is to be expected, and
requiring a 70 percent reduction from 2000 levels are very
significant movements forward, we believe, and great
improvements to the Act.
You see there a chart that will tell you what we expect to
get in emissions reductions from the Clean Air Act as it
currently exists, and what we expect under Clear Skies. You
will notice that in some of those columns there is--well, first
of all you will notice that the numbers show a dramatic
reduction, but you will also notice that there is a blank there
for mercury, because we have not yet set a mercury standard.
That process is in progress. We have it scheduled to be
proposed before December of this year. It will be final in 2004
and become enforceable in 2007 or 2008, and that is without
litigation. We know that everything we do gets litigated. One
of the big benefits of having Congress act with mandatory
levels is that when Congress acts, people listen, and they
start to respond. When EPA acts, they go to court. And that
means that we spend a lot of time in litigation, as you pointed
out.
Now, we are proud of the results that we have achieved on
the individual cases that we brought, but they are incremental.
As you point out, Senator, it's more of a ``nibbling away.'' By
providing certainty with a cap and trade proposal with the
steep 70 percent reductions that the President is calling for,
Clear Skies will, as our modeling has shown, give us a 35-
million-ton greater reduction in those three pollutants over
the next 10 years than we can get moving forward under the
Clean Air Act as it now exists. And that is with the vigorous
enforcement of New Source Review as one of the tools.
Senator Voinovich. Senator Carper?
Senator Carper. Governor Whitman, as I mentioned earlier in
my testimony, I mentioned that Senators Chafee and Gregg will
be joining me tomorrow as we introduce our 4-pollutant bill,
which is similar but not identical to legislation that some of
us introduced last October, S. 3135.
My question of you is this. Has EPA conducted, to your
knowledge, formal economic and environmental analysis of the
legislation that we introduced last October, S. 3135?
Administrator Whitman. Senator, I am not sure of the status
of that, but I can certainly find out for you.
Senator Carper. If you could. If you could do that, I would
appreciate it. If you would be willing to share that analysis
with us, I would welcome that very much.
My other question would be, would EPA anticipate conducting
an environmental and economic analysis on our new legislation
that we will be submitting tomorrow, introducing tomorrow?
Administrator Whitman. We would be happy to work with you
on that, Senator.
Senator Carper. Those are my questions, Mr. Chairman. Thank
you.
Administrator Whitman. Senator, I understand--looking at
the time, there are a few more minutes left here, and I would
be happy to do some quick answer----
Senator Voinovich. That would be wonderful. Thank you very
much.
Senator Jeffords?
Senator Jeffords. At the budget hearing you said that there
is a correlation between greenhouse gas emissions and global
warming, from an EPA and EIA project that these emissions by
power plants will grow by leaps and bounds over the course of
Clear Skies. Why shouldn't this legislation guarantee real
greenhouse gas reductions from this sector?
Administrator Whitman. Well, Senator, as you may know, this
Administration has undertaken a number of different programs
directed at greenhouse gases. And as you point out, it is more
than just carbon; there are six of them.
First of all, as far as Clear Skies is concerned, Clear
Skies is directed at improving and enhancing the progress that
has already been made under the Clean Air Act, and as has
already been stated, carbon is not a regulated pollutant under
that act. So Clear Skies is directed at the three most
egregious emissions from the power plants that we feel can be
addressed now, and we want to enhance those benefits and get at
them quickly in a way that makes sense for that sector.
But we have a number of programs right now that are
underway. We also have as an extraordinary commitment from the
Administration on research on global climate change--if we get
energy bill incentives--that includes programs to encourage
people to use alternate technology and to improve alternatives
to the standard energy sources that we use. That means that we
encourage more conservation and more renewable resources. We
believe that we will make significant progress toward the
President's goal of an 18 percent reduction in greenhouse gas
intensity over the next 10 years.
Senator Jeffords. The present law and our bill put a lot of
emphasis on reducing the number of premature deaths. Is the
principal purpose of Clear Skies to reduce the number of
premature deaths from power plant pollution?
Administrator Whitman. That is certainly an enhancement of
it. It is not the only reason to enact Clear Skies. We also
look at the other environmental benefits that go along with it,
and the reduction of other health concerns, such as asthma and
bronchitis, from bad air quality.
Senator Jeffords. But it's not the principal purpose. All
right.
According to the modeling, the agency's straw proposal
would save 7,000 more lives annually than Clear Skies, and
achieve $60 billion more benefits in avoided health damages per
year, at an incremental cost of only $3.5 billion per year in
2020.
Why are Clear Skies's weaker requirements and slower
deadlines better than the emissions reductions in the straw
proposal for public health?
Administrator Whitman. Well, Senator, the straw proposal
was just that. It was our first cut, and it was a straw. On
further analysis of that straw proposal the agency determined
that many of the targets there were not feasible, neither
timewise nor at levels that had been projected. That was the
first go-round, and as we looked at the technical capabilities
that exist in reaching some of those numbers, and also looking
at the economic dislocation, the impact it would have, and the
overall feasibility of achieving those goals, we determined
that those were not the best way to approach this.
Senator Jeffords. I would be willing to defer my other
questions to Mr. Holmstead----
Administrator Whitman. You can get all the really technical
answers from him. He knows what he's talking about.
[Laughter.]
Senator Jeffords. Thank you, Mr. Chairman.
Senator Voinovich. Mr. Thomas?
Senator Thomas. Thank you, Mr. Chairman.
I am told, and your EPA modeling now confirms, that
reducing mercury emissions significantly will require more than
application of controls on SO<INF>2</INF> and NOx requirements.
Instead, I understand, EPA's modeling projects that power
plants will reduce mercury emissions by a significant amount by
switching from sub-bituminous to bituminous coal.
If so, what kind of an impact do you think that would have
on the costs and environment and economic and energy policy in
the west?
Administrator Whitman. Senator, first of all, we do believe
that in Phase 1 of the Clear Skies Act that the vast majority
of the mercury goal can be attained through co-benefits. The
last few tons may require something more than just a co-
benefit, moret than just an enhancement of existing SOx and NOx
technology, tweaking that technology a little bit further to
capture more mercury with a cap than without, or maybe some
other actions, but we do not believe that what will be left out
there for Phase 1 is going to require a large investment from
the utilities. Our modeling doesn't show that.
Without a mercury cap, I don't think there is any incentive
to reduce mercury emissions. We have taken into account, as we
developed Clear Skies, the difference in the type of coal--
lignite coal versus other coals. We recognize that as we set at
the credits that utilities get for reducing mercury, reducing
emissions from the lignite coal. We believe we are reflective
and balanced, understanding that we still need to achieve the
goals for air quality. We recognize the different types of coal
and the technology available to address the mercury in
different types of coal varies, and the expense of doing that
varies terrifically, as well. So we have tried to anticipate
that in the legislation.
Senator Thomas. As you know, we are also working on an
energy policy, and bituminous coal is one of the longer-term
resources that we have available, and it seems to me that all
those things have to be taken into account.
So I hope----
Administrator Whitman. Clear Skies anticipates a 10 percent
increase in coal as a power source overall. In the course of
Clear Skies, coal use will grow in both the east and the west.
It may not grow as fast in the west as it would without any
kind of a mercury cap, but it will still continue to grow.
Senator Thomas. Thank you.
Senator Voinovich. Senator Cornyn?
Senator Cornyn. Thank you.
Governor Whitman, you and I have discussed--my colleague
was talking about bituminous coal, and I want to talk to you a
little bit about lignite, which you mentioned.
I am concerned, as I know you are, about fuel diversity.
Much of the electricity generated in Texas, about 40 percent,
is produced by coal-fired power plants. Under Clear Skies, EPA
estimates that figure will drop down to 25 percent in 2020,
which is a significant decrease. This is of particular interest
to me because some of the plants in Texas, of course, are using
locally mined lignite coal, a practice that is a win-win
situation because it creates jobs, cuts down transportation
costs.
My question is this. Does EPA have any figures on whether,
in Texas, the declining coal used under Clear Skies would be
native lignite--that is, Texas coal--or coal that was imported
from out of State?
Administrator Whitman. I'm sure we could get that for you,
Senator. I don't know that answer off the top of my head.
Senator Cornyn. OK, if you would, please.
Just one quick follow-up, and if you would like to supply
the answer to us later, that would be fine.
Does EPA have any figures on the decline in coal-mining
jobs in Texas that accompanies this significant decline in
percentage of coal-fired generation?
Administrator Whitman. Again, I don't, but in fact your
next--do you have an answer to that?
OK, we both of us have to find that. I was hoping that the
Assistant Administrator would be able to answer it right now.
We will have to get you that.
Senator Thomas. We'll be glad to send coal down from
Wyoming, of course.
[Laughter.]
Senator Cornyn. Thank you, Mr. Chairman
Senator Voinovich. I thank you, Administrator Whitman. We
really appreciate your being here today.
Administrator Whitman. Thank you very much. Thank you for
this hearing, again. We appreciate it.
Senator Voinovich. Mr. Holmstead, do you want to sit in the
warm chair?
[Laughter.]
Senator Voinovich. As I mentioned in my opening remarks,
the threat of fuel-switching--utilities switching from coal-
based generation to natural gas generation--is a major concern
that must be addressed. In other words, if I look at everything
that is being suggested, the one thing that I try to really pay
attention to is, how far do you take us to the point where
utilities say, ``Chuck it, we're going to go to the use of
natural gas''? And to me, that's very, very bad because that
then--that cost will be passed on to all their customers, and
then I believe that would have a devastating impact on our
economy.
What effect will Clear Skies have on this in terms of fuel-
switching? Do you think it will cause more utilities to fuel-
switch?
Mr. Holmstead. This is an issue that both we and other
parts of the Federal Government have looked at pretty closely,
for the very reasons that you suggest. As a matter of energy
policy, we think it would be a mistake to become overly
dependent on natural gas, so we have looked at this issue very
carefully. I know, for instance, that EIA has looked at this
issue very carefully. And all of our analysis shows that even
with the stringent caps in Clear Skies, that the way the
industry will meet those caps is by installing control
technology on coal-fired plants and not by switching to natural
gas.
So we see essentially no impact on future demand for
natural gas in the utility sector. I think when we compare a
scenario that has us not taking any other action, the so-called
``Rip Van Winkle'' scenario, to Clear Skies, as far as 2020, I
think the increase in natural gas usage for power generation is
about 2 percent. But we all know that the ``Rip Van Winkle''
scenario can't be the case under the current Clean Air Act. So
we think that under Clear Skies you will actually get less
fuel-switching than you would get under the current Clean Air
Act.
As I think you know, Mr. Chairman, one of the things that
we tried to do here--and I know that Senator Carper and others
are looking at the same type of issue--is to give the industry
certainty and longer timeframes to plan out their investments,
so that they can actually raise the capital and plan out their
investments and preserve coal use. But when you have shorter
time periods, which you sometimes do from the time a regulation
is passed until it is implemented, it actually tends to
encourage more fuel-switching than you would get under a
multipollutant scenario.
So the bottom line is that by using this more efficient,
more certain tool, we avoid the need for any fuel switching in
the power industry.
Senator Voinovich. Is this philosophy of Clear Skies based
on what we have had pretty much with the acid rain provisions
of the Clean Air Act? I mean, there has been so much
controversy about that, but it is my understanding that that
has been fairly successful in moving forward and getting steady
improvement.
Mr. Holmstead. Well, I think this is the best indication of
its success. Wherever I go now I run into someone who claims to
have invented Title IV, Acid Rain Program, which I think is an
indication of how well it has worked. Back in 1990--and by the
way, it was actually my idea----
[Laughter.]
Mr. Holmstead.--the Acid Rain Program was highly
controversial back in 1990, and there was a lot of skepticism
over whether it would prove to be effective. But President
Bush, the first President Bush, made that really the
centerpiece of his Clean Air Act reforms, with support from
people in this room today.
What that has shown is that when you use a market-based
program--and I believe I can quote Senator Carper, when he says
that ``markets do work''--and you give people an economic
incentive to over-control and to find good ways to reduce their
pollution, you can actually achieve greater gains quicker than
you otherwise would.
So back in 1990, I think EPA projected that the cost of the
Acid Rain Program would be somewhere in the neighborhood of $6
billion to $7 billion. The industry said it would be more than
that. Now we know, 10 or 12 or 13 years later, that in fact the
annual cost isn't $6 billion to $10 billion; it's more like $1
billion to $2 billion. It has substantially reduced pollution.
It has done it in a way that we've never had to bring any
enforcement actions because it is completely self-implementing.
So I think it has really been, by everyone's measure, one of
the most successful programs under the Clean Air Act. And the
Clear Skies approach is really designed to build on that,
simply to extend that to the two other pollutants and
substantially lower the cap for SO<INF>2</INF>.
Senator Voinovich. Senator Carper?
Senator Carper. Thank you, Mr. Chairman.
Mr. Holmstead, welcome. It is good to see you again, and
thank you for your testimony today and your response to my
questions. Thank you for quoting me, and don't forget that
first principle, too----
[Laughter.]
Senator Carper. [continuing] . . . and as I've said now and
then, you're welcome to do that.
Let me say, as I said earlier, I think we can have a 4-P
rule, such as the Clean Air Planning Act that we are
introducing tomorrow, and still enjoy the benefits that our
domestic coal supply offers. I say that as the only native West
Virginian in the U.S. Senate. An analysis that I have seen
suggests that the Clean Air Planning Act would result in a
similar generation fuel mix by 2020; I alluded to that during
my earlier statement. But just a slightly larger shift, maybe 3
percent, to natural gas from coal, under legislation that we
will be introducing, as compared to Clear Skies in 2020.
With that in mind, any idea why the President is offering a
bill that does not include CO<INF>2</INF>, while at the same
time addressing SOx, NOx, and mercury?
Mr. Holmstead. I think Governor Whitman--as she said, the
Administration has determined that there are really better ways
of addressing the CO<INF>2</INF> issue and global warming in
general. As you well know, CO<INF>2</INF> is one of six gases
that is believed to contribute--possibly contribute--to global
climate change. CO<INF>2</INF> and all of these other gases
come from many different sectors of the economy, and it is
really a global problem.
On the other hand, the issues that we are trying to deal
with in the Clear Skies Act have to do fundamentally with the
power sector. The power sector is responsible for about 65
percent of total SO<INF>2</INF> emissions in the United States,
responsible for somewhere in the neighborhood of 25 percent of
the NOx, and I think more than 25 percent of the mercury.
Pollutants which are having immediate and direct health
impacts. So we just think that that sort of regulatory approach
is appropriate for the three pollutants, but that approach
under the Clean Air Act just isn't well-suited for dealing with
CO<INF>2</INF>. As the Governor mentioned, we have a number of
other programs that are proving to be successful, although some
of them are only starting out, for dealing with the issue of
CO<INF>2</INF> emissions.
Senator Carper. Any idea what percentage of CO<INF>2</INF>
is produced in this country by our electric utilities?
Mr. Holmstead. I know it's a significant percentage. I
don't have that number at my fingertips, but we could certainly
provide it to you.
Senator Carper. I understand it's a bit more than a third.
All right. One second question, if I could. A group of
companies called the ``Clean Energy Group''--and I think some
of them actually have representatives present in this room--I
understand they ran an analysis of the legislation that Senator
Chafee and I and others introduced last fall, and in that
analysis they considered the cost of our bill as introduced,
and then they considered our bill as if it were a 3-P bill, the
same dates and levels as our bill but without any kind of
carbon control. And what they found--this, to me, was amazing--
they found that by adding CO<INF>2</INF> to the other 3 Ps they
would increase the total system cost of compliance by just
about 1.5 percent.
My question is this. If we can get the benefit of carbon
controls for less than 2 percent in additional compliance
costs--that's actually within the margin of error on most
models--why is the Administration not addressing carbon?
Mr. Holmstead. I guess what I would have to say is that I
haven't seen that analysis. I suppose that could be correct,
although the numbers that I've seen in terms of cost for
CO<INF>2</INF> suggest that it could be more than that. But I
think the real answer is, we believe it is important to look at
CO<INF>2</INF> in its proper context. To the extent that we
need to address CO<INF>2</INF> and other greenhouse gases, the
fact that we may make some modest reduction from one sector of
the U.S. economy is probably not very relevant, and we think it
would be much more efficient to focus on improvements in
technology. I know, being a native of West Virginia, you must
be aware of the President's proposal on FutureGen, which is $1
billion to try to develop a power plant working with other
partners a power plant that would have zero emissions of
CO<INF>2</INF> and zero emissions of pollutants. We think it is
important to focus our efforts on those sorts of things that
really can resolve the issue in the longer term instead of
looking at shorter-term things.
And I think my personal perspective is, I would hate to
have us lose the benefits of very substantial reductions in
these other pollutants that are having immediate health
consequences, as we continue to take a much longer time to try
to develop an elusive consensus on CO<INF>2</INF>.
Senator Carper. Mr. Chairman, my time has expired.
Let me just say, as I relinquish this microphone, that I
find it of more than just passing interest, that we could add a
fourth P to the Administration's proposal and not have a very
substantial impact on the fuel mix, coal or natural gas,
between what it is today and what it might be in the year 2020,
and I think that's relevant to this debate.
The other thing that I described as amazing, that is
surprising to me, that we can add a fourth P to a 3-P proposal,
so that we are comparing apples with apples, and do so while
adding less than 2 percent to the compliance cost. Those aren't
my numbers; those are the numbers that were produced by a
consortium of the Clean Energy Group, which includes a number
of companies and utilities in this country.
Thank you again.
Senator Voinovich. Senator Cornyn?
Senator Cornyn. Mr. Chairman, I asked Governor Whitman
about lignite. My understanding is that lignite coal is not
only used significantly in Texas, but also in North Dakota,
Louisiana, and Mississippi.
My concern has to do with the technology availability to
reduce mercury--removal levels in lignite coal. I discussed
this at the earlier budget hearing with Governor Whitman, and
while I applaud her goals and optimism, I want to make sure
that for Texas it doesn't represent a big gamble.
Can you tell me about any commercially available technology
that is available today for mercury removal from lignite?
Mr. Holmstead. We understand that the technology known as
Activated Carbon Injection, or ACI, is designed--and should be
successful--in removing mercury from lignite.
Now, your question was, is that commercially available, and
I think the answer to that is that it's not at this point. We
don't have full-scale kinds of projects. But that's one of the
reasons why we are really focused on having an overall cap as
opposed to plant-by-plant kinds of requirements. One of the
things that we all learned in 1990 is that as much as we may
know about what we think are appropriate ways to reduce
emissions, that the marketplace, left to its own devices, can
find better ways of doing it. And so by having emission caps,
first of 26 tons and then 15 tons, it may be that for that
lignite plant it doesn't make sense to put specific controls on
that, but another plant could over-control
So the real issue here is how we get to that overall cap,
and so we're not as concerned about specific--what can be
achieved at a specific plant.
I will say that we recognize that it seems to be more
expensive to reduce mercury emissions from lignite coal, and we
have tried to address that in terms of the allowances. So I
think you are probably aware that we have tried to account--we
would like to be able to equalize the cost of control across
the different coal types, and we believe, based on what we've
seen, that it can be controlled; it's just more expensive to do
so. So we have taken that into account in the allowance system.
Senator Cornyn. I appreciate the fact that the bill does
take into account the particular difficulty with which mercury
removal from lignite is greater than other types of coal. But
just to clarify, you are saying that to your knowledge there is
no currently commercially available technology to remove
mercury from lignite?
Mr. Holmstead. I think to be completely correct, I should
say that there is a commercially available technology. To my
knowledge it has not been used on a full-scale lignite plant
yet. I think the vendors are telling people that they will
guarantee that it can be used, but the folks that do the
technology reviews believe that's the case.
But you are correct, we don't at this point have--at least
as far as I know--a full-scale, full-size plant burning lignite
that uses ACI technology.
Senator Cornyn. No demonstration of it----
Mr. Holmstead. I am sure my staff will correct me, which
they are fond of doing, but I do think that we have some cases
where we have plants burning lignite coal that have other
control systems designed to reduce NOx and SOx, but also
reducing mercury. So I believe that we have some evidence of
that, but you are correct that there is much more uncertainty
about exactly how we would get emission reductions from plants
burning lignite.
Senator Cornyn. Are you referring to the North Dakota test?
My staff advises me, and you can just check this out and get
back to me----
Mr. Holmstead. I would be happy to.
I understand that there is a difference between the lignite
in North Dakota and the lignite in----
Senator Cornyn. I just want to make sure that we're
comparing apples with apples. So I would ask you to provide my
staff with the test on North Dakota or any other place where
you have found this to be successful, or claim to be
successful, so that we can compare that to our situation in
Texas.
I yield back for now.
Senator Voinovich. There being no other questions, you are
excused, Mr. Holmstead. I know you will be available to the
committee and staff as we move along to try to mark this bill
up.
Mr. Holmstead. Thank you very much for the chance.
Senator Cornyn. Mr. Chairman, I just have one or two other
questions I would like to submit in writing, if I may, and get
responses in writing.
Senator Voinovich. Let the record show that Senator Cornyn
will be submitting questions in writing. We are now going to
ask Mr. Glenn McCullough, chairman of the TVA, to be our next
witness.
Mr. McCullough, we are very pleased that you are here today
to testify on behalf of Public Power. You may proceed with your
testimony.
STATEMENT OF GLENN MC CULLOUGH, JR., CHAIRMAN, TENNESSEE VALLEY
AUTHORITY
Mr. McCullough. Thank you, Mr. Chairman, and members of the
Subcommittee.
On behalf of the TVA Board and our employees, thank you for
the opportunity to discuss our views on clean air and more
specifically, the Clear Skies Act of 2003. As both steward of
the environment and provider of electricity in the Tennessee
Valley, TVA has a unique perspective on the clean air issues
facing our region and the Nation. Each day TVA works to find
the best balance for providing affordable reliable electricity
to fuel a sustainable and vibrant economy and enhancing
environmental quality.
No aspect of that balance is of greater importance than the
issue you are considering today--clean air. Through 158 local
utilities and 62 large industrial customers, TVA supplies
electricity for 8.3 million people across a seven-State region.
The President's national energy policy recognizes the
importance of a diverse generating mix for our Nation.
TVA's power system reflect such diversity. The diversity of
our system requires a comprehensive commitment to environmental
stewardship. That commitment is reflected by a record of
emissions reductions. Since 1977, TVA has reduced sulfur
dioxide emissions by 76 percent. We plan to invest an
additional $1.5 billion to build an additional five scrubber
systems. This action, along with switching to low sulfur coal,
will reduce SO<INF>2</INF> emissions 85 percent from 1977
levels and when completed will result in scrubbers on more than
half of our capacity.
In the past 8 years TVA has reduced nitrogen oxide
emissions by 50 percent, and in the future we are investing
more than $1.1 billion to install selective catalytic reduction
systems or similar technologies on 25 generating units. In
combination with other controls, the SERs will reduce our NOx
emissions by 75 percent during the ozone season.
By 2005, we will have SERs on more than 60 percent of our
coal-fired capacity. So far TVA has invested more than $3
billion for clean air improvements, and by 2010 we will have
invested nearly $5.6 billion.
As I outlined, we are in the midst of one of the most
aggressive emission reduction programs in the Nation which
means that between now and the end of decade, TVA will spend an
average of nearly $1 million a day to improve air quality. We
know that emissions from all sources--stationery and mobile--
must continue to be reduced.
For that reason, Mr. Chairman, I am here today to endorse
the Clear Skies Act of 2003. While the current Clean Air Act
has done much to improve air quality, it contains provisions
that could threaten reliability and affordability of the
Nation's electricity supply. Affordable, reliable electricity
is achieved, in part, by the industry's ability to use a
diverse number of fuel sources including coal, our Nation's
most abundant energy source.
The Tennessee Valley depends on coal for about 60 percent
of our electricity. Unfortunately, this vital energy resource
currently faces a complicated web of overlapping, duplicative,
and unnecessarily costly emission control requirements to
create enormous uncertainty for future investment.
For example, there are more than a dozen separate
regulations for sulfur dioxide and nitrogen oxides alone. At
times disputes over these regulations have significantly
delayed the improvement of air quality they were designed to
achieve. This piecemeal approach should be replaced with a set
of timetables and reduction targets for sulfur dioxide,
nitrogen oxide, and mercury.
We believe that Clear Skies, a well-designed multi-emission
approach, will continue the national trend of better air
quality and provide additional benefits. Those benefits include
a streamlined regulatory process; sustained diversity in the
Nation's fuel supply; and market-based mechanisms for achieving
reductions that are fair. They are fair to both public and
private power providers.
Clear Skies would give the utility industry the certainty
it needs to plan and to finance emission reductions without
unduly driving up prices for consumers. Such results have been
demonstrated by the very successful Acid Rain Program, as has
been referenced to today.
While TVA endorses the reduction targets and timetables in
Clear Skies, some provisions could be addressed to achieve the
same environmental benefit and be less burdensome to coal-fired
generations. Specifically, we urge you to ensure that the
interim 2010 mercury targets reflect the Administration's
intent of reducing mercury to levels achievable via a cap-and-
trade system through the co-benefits provided by sulfur and
nitrogen control technologies. This would allow utilities that
have already reduced mercury through sulfur and nitrogen
technologies to realize credit for previous action.
In conclusion, Clear Skies is a very aggressive proposal.
Unlike those advocating for more stringent targets and
timetables, TVA uniquely knows what is required to achieve
reductions such as those called for in Clear Skies. As I
mentioned earlier, TVA will have invested $5.6 billion in
emission reductions by the end of this decade. Achieving the
results contemplated by Clear Skies would require TVA to invest
an additional $4 billion between now and 2018.
To achieve more on a faster timetable would increase costs
considerably and place an unrealistic burden on both the
consumer and the economy for little additional environmental
benefit. The TVA appreciates the Subcommittee's valuable work
in shaping a balanced, achievable path to cleaner air for our
Nation.
Thank you. I will be happy to respond to any questions you
may have.
I would ask that my written statement be placed in the
record in its entirety.
Senator Voinovich. Mr. McCullough, are you familiar at all
with the bill that was marked up by this committee last year,
the Jeffords-Lieberman bill?
Mr. McCullough. I have not researched that bill, Senator.
Senator Voinovich. One of the provisions that is contained
in the bill deals with the issue of greenhouse gases,
CO<INF>2</INF>. There has been some debate on whether or not
CO<INF>2</INF> ought to be included in Clear Skies. Preliminary
to that, I have been doing what I can, working with Senator
Carper and some other people to see if we cannot find some kind
of a compromise that will deal with the issue of greenhouse
gases.
Mr. McCullough. Yes, sir.
Senator Voinovich. The question is: If we cap
CO<INF>2</INF>, what impact would that have on TVA?
Mr. McCullough. Mr. Chairman, I would have to know what the
cap might be. We believe that the President's proposal to
voluntarily reduce greenhouse gases is responsible, and is one
that has worked. TVA, over the last decade, has reduced our
greenhouse gas emission by over 200 million tons. We have done
that by introducing renewables, by biomass, co-firing our coal
units, and by other technologies.
We believe that the Administration's proposal to
voluntarily call for a reduction in greenhouse gases at this
point in time with the level of technology still advancing in
terms of greenhouse gas sequestration and containment, is a
responsible way to proceed.
Senator Voinovich. I would like you to run the numbers on
the bill last year. There will be a number in the bill that I
am sure Senator Carper introduces. I would just like to get
your honest opinion about what impact it would have on your
operation.
What impact do you think that Clear Skies would have on
your ability to maintain your diverse fuel mix? You have 60
percent coal. What is the rest of it?
Mr. McCullough. Mr. Chairman, that is right. TVA's
generation mix is about 60 percent goal. Clear Skies is very
ambitious and very aggressive. Control will be required to
achieve the reductions in nitrogen oxide and sulfur dioxide
that Clear Skies calls for. It provides a 15-year period of
time so that utilities can prepare to meet these reductions in
a way that is responsible for the consumer.
At the same time, we can continue to rely on what is about
a 300-year most abundant supply of fuel that this Nation has.
We can continue to implement clean coal technologies that are
reducing in a really significant way the NOx and sulfur
emissions. We feel that we can continue to add to the diversity
in the strength and not reliance of any one single fuel mix of
renewals, the expansion of safe nuclear, and hydroelectric. We
believe that all of these diverse generation mixes are the key
to having energy security and achieving additional reductions
in emissions.
Senator Voinovich. Thank you.
Senator Carper?
Senator Carper. Welcome, McCullough. We are delighted to
have you before us today.
I understand you may have a common bond with our chairman.
Have you ever been an elected official?
Mr. McCullough. Yes, sir.
Senator Carper. What position did you hold?
Mr. McCullough. Senator, I was elected mayor of Tupelo,
Mississippi.
Senator Carper. Are there any famous people who ever born
in Tupelo?
[Laughter.]
Mr. McCullough. Elvis Presley might come to mind.
Senator Voinovich. Thank you, very much.
[Laughter.]
Senator Carper. He does a great Elvis impersonation. He
just gave us a little piece of it here. This is the guy who
started the Rock and Roll Hall of Fame when he was Mayor of
Cleveland.
Senator Voinovich. Absolutely.
Senator Carper. You guys may want to get together and jam
later.
[Laughter.]
Senator Carper. I want to follow up on a question of a
response that was going back and forth between you and our
chairman. The question I think he was asking was the effect on
TVA of the enactment of legislation that addresses
CO<INF>2</INF>, that addresses carbon. You indicated,
understandable, that you would have to know what the caps were
before you would be able to give some indication of how you and
the folks of TVA would be able to respond and comply.
The legislation introduced by our colleague, Jim Jeffords,
who has already gone, if I am not mistaken, his legislation
says that by 2008, we should have reduced emissions of
CO<INF>2</INF>, of carbon, so that the levels are back to those
that existed in 1990.
The proposals that I and some others will introduce
tomorrow have two goals: an interim goal and then a longer-term
goal. By 2009, we would expect the industry to have levels of
emissions no greater than what existed in 2005.
Further, by 2013, we would expect those levels of emissions
to have been reduced to have existed in 2001. So in 2009 we
want to be back down to 2005 levels, and in 2013 we want to be
back down to 2001 levels.
If you could give us some initial reaction to that, I would
welcome it. You have an array of proposals here from Senators
Jeffords' very aggressive approach, to the Administration which
chooses not to include carbon in their proposal, to what I have
outlined, the stair step approach.
What are your thoughts?
Mr. McCullough. Senator, and Mr. chairman, I will get the
analysis run. We will certain respond in more detail as to how
that could affect TVA's system.
We believe that a reduction in greenhouse gases to an 18
percent intensity of the U.S. economy by 2012 is responsible
and very ambitious, and yet an achievable greenhouse gas
strategy.
I will be happy to take a look at the caps that are called
for and do the analysis on our system and get that information
to you in more detail.
Senator Carper. You mentioned the 18 percent reduction. I
think Governor Whitman may have alluded to that as well in her
own testimony.
My understanding is that it is not an outright 18 percent
reduction, but it is an 18 percent slower growth in the level
of emissions.
Mr. McCullough. It is my understanding that in 2012, we
would have a greenhouse gas intensity that would not exceed 18
percent of the economic activity. The is a range, a ratio, that
you can measure there.
Senator Carper. We will have an opportunity to double check
that. I will double check it and perhaps you could as well. But
my understanding is that the 18 percent reduction is not a
reduction overall, but it is a reduction of 18 percent in the
growth.
I see some members of the audience nodding their heads. So
I am thinking maybe there is something to that.
Mr. McCullough. Yes, sir.
Senator Carper. This is more of a personal question, but we
are among friends. Just talk to me about your own personal
commitment and views on clean air. You have an obligation to
the folks who work for you and your customers. Talk to me about
your obligations that you feel to the people who may live in
the areas that you serve and the rest of us who live downwind.
Talk to us about SOx and NOx and CO<INF>2</INF> from your
heart.
Mr. McCullough. Thank you for the question, Senator. TVA
does have an intense responsibility to ensuring that our air is
cleaner. As I said, we have invested over $3 billion to date to
bring down NOx and sulfur dioxide emissions significantly. By
2005, TVA will reduce nitrogen oxide emissions by 75 percent.
Senator Carper. By when?
Mr. McCullough. By 2005.
Senator Carper. Compared to what?
Mr. McCullough. Going back to 1997 levels when we started
this ambitious selected catalytic reduction system strategy. By
the same year in 2005, we are going to reduce carbon dioxide
emissions by 85 percent through the employment scrubbers.
Now, going forward, if Clear Skies were implemented, we
would have to install SERs on 23 additional units at a cost of
another $5 billion by 2018.
Senator Carper. You said $5 billion by 2018?
Mr. McCullough. Yes, sir.
Senator Carper. Give me some idea of what your revenues are
in a year? Do you have any idea what your revenues were last
year?
Mr. McCullough. Yes, sir. Our revenues in fiscal year 2002
were $6.8 billion.
Senator Carper. So, looking at between now and 2018, we are
talking about revenues probably close to $200 billion?
Mr. McCullough. Our revenues are growing at 2 to 3 percent
per year. I would have to project that out for you.
Senator Carper. I was just trying to get an understanding
of what percent of your revenues a $5 billion is suggesting. It
sounds like it is about 2 or 3 percent.
Mr. McCullough. We are spending $527 million in this fiscal
year alone on clean air. That is on a $7 billion budget. We are
projecting to reduce SOx emissions by 85 percent by 2005.
Again, we would have to control 40 additional generation units
if Clear Skies were enacted by the year 2018. This is very
aggressive.
Senator Carper. Just out of curiosity. How do you fund
those investments? How much did you say this year?
Mr. McCullough. $527 million.
Senator Carper. How do you fund that?
Mr. McCullough. Although we are owned by the Federal
Government, TVA is totally self-financed. We do not rely on any
appropriated dollars. So all of the funding for clean air, for
a higher quality of water, for power generation, and
transmission upgrades to run our system and to reduce our debt,
comes from the ratepayers of the Tennessee Valley.
Senator Carper. Do you issue debt?
Mr. McCullough. Yes, we do issue bonded indebtedness.
Senator Carper. Will you issue debt in part to pay for
those kind of investments?
Mr. McCullough. Yes, this Board is committed to continuing
to bring our debt down.
Senator Carper. To quote a native son of Tupelo, ``Thank
you very much.''
[Laughter.]
Mr. McCullough. You are welcome, very much.
Senator Voinovich. Are you familiar with the Jeffords-
Lieberman numbers for the 3-Ps--NOx, SOx, and mercury?
Mr. McCullough. No, sir; I am not.
Senator Voinovich. I would like to get your reaction to
what those numbers would do if that legislation had passed. The
real issue is whether or not it would have caused you to fuel
switch?
Mr. McCullough. Mr. Chairman, we would like to do that
analysis in detail and report back to you.
Senator Voinovich. Have you ever calculated what impact
fuel switching to most probably natural gas would have on your
customers?
Mr. McCullough. It would result in an increase in cost due
to the volatility in the price of natural gas. We do rely on
natural gas for peaking capacity, but primarily our system, as
I stated, is close to 60 percent coal. We are about 25 percent
nuclear. We are uprating our nuclear units bringing on line the
first reactor in the 21st century at Browns Ferry. We are
modernizing our turbines in 29 of our hydroelectric facilities.
We are doing renewables. We are doing solar, wind, and land
fill gas. We rely on natural gas for peaking capacity.
Senator Voinovich. Thank you.
Senator Carper, do you have anything else?
Senator Carper. I have just one last quick question.
We had a hearing last week with the Department of Defense.
We were talking about their interest in being ``excused'' from
strict compliance with some of our environmental laws when it
comes to cleaning their environmental hazards and waste sites.
One of the points that we made to the Department of Defense
is that while we are not interested in doing anything that
curtails the readiness and their ability to defend our security
at home and our interests abroad, we felt that because they are
a government agency, they had a special obligation to be good
stewards of our environment. Your authority is not exactly a
government entity but created by the government and has a
special standing and I think maybe a special responsibility.
I was pleased to hear of your interest in looking to
renewables--wind, solar, and others--as you provide power to
your customers.
I would also ask you just keep in mind the special standing
that you have and the special responsibility that you have with
respect to our environment and our clean air. I think you have
that. I just want to reinforce that today.
Mr. McCullough. Thank you, Senator. We definitely concur
with that point. I can assure you that we take that
responsibility very seriously.
Senator Carper. The last question I would ask is: People
sometime say to you, ``What do you want to do next in your
life?'' I always tell them, ``I would like to move to a little
city--not Cleveland. Just a little city and maybe be their
mayor.''
What is it like being mayor of Tupelo?
Mr. McCullough. It is a wonderful opportunity.
Senator Carper. My home town is a wonderful city. That was
a great opportunity. The opportunity to serve at TVA is
likewise. I was with three mayors from Alabama earlier this
morning. It is a great accountability to be held accountable
and to have this opportunity to hear your thoughts and to
respond.
Thank you, Mr. McCullough.
Senator Voinovich. Thank you for joining us.
Mr. McCullough. My pleasure.
Senator Voinovich. The first witness of our next panel will
be Mr. Jim Rogers, CEO and President, Cinergy Corporation. Mr.
Rogers is going to be here on behalf of the Edison Electric
Institute which represents the major utility companies in the
United States. This is an Ohio-based utility, Cinergy
Corporation.
Mr. Rogers is not only representing them but he is also
representing the Edison Electric Institute.
He will be followed by Ken Colburn of the Northeast States
for coordinated Air Use Management; David Hawkins, Climate
Center Program Director, Natural Resources Defense Council;
Eugene Trisko, United Mine Workers of America; and Bernard
Melewski, Adirondack Council.
Mr. Rogers, we are very happy to have you here today with
us. Thank you.
STATEMENT OF JAMES ROGERS, CEO AND PRESIDENT, CINERGY
CORPORATION, ON BEHALF OF THE EDISON ELECTRIC INSTITUTE
Mr. Rogers. Thank you, Mr. Chairman. I appreciate the
opportunity to be here today. I want to start by thanking you
personally for your leadership on this Subcommittee and driving
these important issues forward because it is critical to entire
economy to get it right.
As you said in your opening statement, it is really all
about harmonizing our energy, environmental, and economic goals
in this country. I have every hope that with your leadership we
will get that done.
While it is your job to harmonize, my job is to translate
our country's goals and policies into kilowatt hours delivered
into the homes and businesses of Ohio, Indiana, and Kentucky. I
take my stewardship in a very serious way. That is why I have
been for many years a supporter of multi-emission legislation
that has ultimately been embodied in the Clear Skies proposal.
My job is to purchase fuel. We purchase almost $800 million
a year, or 30 million tons of coal to purchase gas, to build
power plants, to build scrubbers and SERs to reduce emissions,
to invest in new technologies.
Senator Carper, this really goes to your question about
stewardship, we spent $950 million to reduce emissions. On NOx,
we spent on $800 million, which is significantly more than many
projected that it would be because of the compressed time lines
that occurred. With respect to Clear Skies, we are going to
spend roughly $1.5 billion.
My job is to make sure this impact on our customers, our
investors, and our communities is done in a way that creates a
value for all of them. My testimony lays out all of the
specific issues. It urges you to go to work. I am prepared to
go to work and to spend the $1.5 billion to make further
emissions reductions.
I do not think that there is any question that the Clean
Air Act is broken. I think everybody that is sitting here could
support that. Just look at the proposals--whether it is Senator
Jeffords' proposal, or whether it is your proposal, Senator
Carper, or whether it is Clear Skies--everybody is pointing to
the fact that it needs to get fixed. There needs to be a sense
of urgency about getting it fixed. I do not think anybody
disagrees with that.
I think the other thing is we need to reach agreement.
Every day we delay, every day we are in court litigating the
Clean Air amendments in the Clean Air Act, is a day delayed in
reducing emissions. I urge you to have a robust debate, but not
an endless debate. Again, every day you debate is one less day
we have to reduce emissions.
The important issues are to maintain coal's position in the
mix. This is a diversity of fuel issue. We have to get that
right. We have to keep coal in the mix. Under the current Clean
Air Act, we are going to become increasingly dependent on gas.
In my judgment that is not a good thing for this country.
In the last 3 years we have built 10 years of generating
capacity in this country, all gas-fired. No time in the history
of our country have we built so much generation predicated on
one fuel. What I worry about is where the gas is going to come
from? Is it going to be new L&G terminals with all the
environmental issues there and the importation and further
dependency on the Middle East? Is the gas going to come from
wilderness areas? Is it going to come from offshore? Is it
going to come from Alaska?
These are the questions we need to ask. We have not
answered those questions in an affirmative way that really
allows the gas supply to be there. Just this winter in Ohio
three still plants were shut down because gas prices went so
high. Heating is a very critical factor to make sure we have
adequate heating.
I would urge you to remember back to 1978 when this
Congress passed the law banning the burning of natural gas to
generate electricity. It was repealed 6 years later, but the
fact of the matter is that we think of gas as a premium fuel.
If we go back to that way of thinking again and looking at the
supply/demand balance, we may well. If we go back to that way
of thinking again, where do we turn to meet the demand for
electricity in this country. The place we turn is to coal where
we are so dependent today.
My recommendation to you is to go to work, get it done,
give us the ability to go to work and continue to reduce
emissions in the future.
Thank you very much.
I would ask that my written statement be placed in the
record in its entirety.
Senator Voinovich. Thank you.
Our next witness will be Ken Colburn, Executive Director,
Northeast States for Coordinated Air Use Management.
We are glad to have you here today.
STATEMENT OF KEN COLBURN, EXECUTIVE DIRECTOR, NORTHEAST STATES
FOR COORDINATED AIR USE MANAGEMENT
Mr. Colburn. Thank you, Mr. Chairman. My name is Ken
Colburn. I am Executive Director of NESCAUM, an association of
air quality agencies of the eight Northeast States. I am
pleased to fill in for New Jersey Department of Environmental
Protection Commissioner, Bradley Campbell, who had to leave for
some appointments with Members of Congress.
The Northeast States strongly support an integrated multi-
pollutant approach to reducing power plant emissions, and have
so testified before you in the past. We applaud the
Administration and the committee for making such legislation a
priority in this Congress.
In the Northeast, where sulfur dioxide and nitrogen oxide
emissions from upwind power plants contribute significantly to
fine particle and ozone pollution, acid rain, and poor
visibility in our wilderness areas, we have long appreciated
the need for Federal action.
Mercury contamination had led to fish consumption
advisories on our lakes and rivers, creating an urgent need to
curb the buildup of this persistent neurotoxin in our
environment. We see the problem of climate change as presenting
unprecedented challenges for our ecosystems and quality of
life, but also great economic opportunity for those who develop
the clean energy technologies of the future.
For these reasons, the Northeast States have followed with
keen interest the multi-pollutant initiatives now before
Congress, including the Administration's ``Clear Skies''
proposal. In evaluating each, we have asked three core
questions:
Is it comprehensive? Does it adequately address public
health and the environmental challenges we face? Does it ensure
continued clean air progress, not only at the national level,
but at the local, State, and regional levels as well.
Recognizing Clear Skies as a starting point for the
committee's deliberations, I want to focus my remarks today on
how Clear Skies can be improved to meet these tests.
First, emission reductions can and should happen sooner.
Many areas of the country need to attain new, more stringent
standards for ozone and fine particles in the next four to 7
years. Yet, the emissions caps in Clear Skies will not be fully
implemented until 2018. Delaying these cuts for another 15
years is a problem for States trying to reach attainment, but
it is an even bigger problem for individuals experiencing
serious health concerns.
Second, we can and should do more to reduce mercury
emissions. Given the availability of highly effective control
technologies, and the bioaccumulative threat posed by this
toxin, we should not depend only on co-benefits from other
controls. Mercury emissions should be capped at a level around
half what Clear Skies proposes.
Third, national multi-pollutant legislation must address
the intractable problem of transported air pollution, and must
not weaken or remove the regulatory tools that States rely on
to improve air quality at the local and State levels. There is
no guarantee that regional transport concerns will be solved
under Clear Skies. Yet, States would be unable to secure
Federal help in addressing transport until after 2012. Even
then, new hurdles for Federal intervention could make the
current transport provisions of the Clean Air Act essentially
unenforceable.
States support constructive reform of the Clean Air Act
provided it advances clean air objectives and is strictly tied
to implementation of new reduction requirements. Clear Skies
appears to go too far in the direction of regulatory reform,
however, weakening or even eliminating several provisions of
the Clean Air Act before its caps even take effect. Several
such concerns including New Source Review, regulation of non-
mercury toxins, potential local impacts, and protection of
States' rights are listed in an attachment to my testimony.
The bottom line is that it is better for States to have too
many tools and not need to use them than to have States in a
Catch-22 position with the responsibility for reaching
attainment, but without the tools to do so.
The final issue I want to address is carbon dioxide. It
belongs in multi-pollutant legislation because without it, the
market signals and business certainty needed to promote sound
investment decisions will remain absent. The result will be
greater climate risk and higher costs for both the industry and
consumers. The Northeast States feel so strongly about the need
to act on climate change that they have made State level
commitments to reduce greenhouse gas emissions. Some have
included carbon in their own aggressive 4-P initiatives.
Regulation of carbon does not need to be onerous, but carbon
does need to be ``in.''
In short, we support multi-pollutant legislation that does
both more and less than Clear Skies proposes, more (and sooner)
in terms of pollution reductions, and less in terms of altering
the Clean Air Act.
Earlier, the EPA Straw Proposal was mentioned. We urge the
committee to revisit EPA's Straw Proposal and other current
legislative initiatives to see about capturing the additional
benefits I have already enumerated.
In closing, let me thank you for considering our views.
Again, we commend the Administration for keeping multi-
pollutant legislation on its legislative agenda. The Northeast
States believe that the opportunity for real progress here is
as great as the need for it. We look forward to playing a
constructive role in this effort.
Thank you, Mr. Chairman.
I would ask that my written statement be placed in the
record in its entirety.
Senator Voinovich. Thank you.
Mr. Hawkins?
STATEMENT OF DAVID G. HAWKINS, CLIMATE CENTER PROGRAM DIRECTOR,
NATURAL RESOURCES DEFENSE COUNCIL
Mr. Hawkins. Thank you, Mr. Chairman.
I would request that my full statement be placed in the
record in its entirety.
On behalf of the National Resources Defense Council, I will
try to highlight the three major policy failings in the
Administration proposal. They are: The proposal fails to
protect public health; it repeals or weakens key safeguards in
existing law, and that by ignoring carbon dioxide it worsens
global warming.
On the first point, public health, the evidence is
undisputed that power plant pollution contributes to some
30,000 premature deaths a year in the United States along with
other damages. The first question you should ask about any
proposal before us: How good a job does it do in reducing that
toll of public health damage?
The first chart to your right shows that the Administration
proposal does not do an adequate job. It fails to protect
public health, especially when compared to proposals that were
sent into the Administration but never came out of the
Administration. I refer to what was called the ``Straw
Proposal'' of EPA.
That was the label on the document. The analyses were not
straw analyses. They used the same peer-reviewed methods as the
Administration's proposal, but analyzed a tighter cap. Governor
Whitman testified that those proposals did not go forward
because they were determined to be infeasible.
If EPA determined them to be infeasible, it has not
published the results of that conclusion. Indeed, the only
analysis on the Agency's website and the only analysis we have
seen publicly shows the opposite--that it is feasible, that you
can achieve these reductions faster.
I urge the committee to ask these kinds of questions: Is
there an analysis that shows that the better program is
infeasible? If so, this committee should see it, especially
before voting on something that has the results which I will
display on the next slide.
Compared to the proposal it rejected, the Administration's
bill saves $3 billion for the industry, but at a cost of $60
billion in public health damage to the American public. That is
an incredibly bad bargain. Before you vote for it, I would hope
you would want full answers to why that is a justifiable
outcome.
These damages do not just occur in 2020, but in fact, they
occur all the way along between now and 2020 as a result of the
higher emissions allowed by the Administration proposal,
compared to the EPA proposal that they rejected. This second
chart shows that all along the way that the emissions from the
Administration proposal are significantly higher than the
emissions under the EPA proposal. Again, a discussion of why
this better proposal was rejected is what is critical here.
When you look at the pollutant mercury, you see again
dramatically higher loadings. This is a snap shot in 2015 of
the mercury loadings under the Administration's bill compared
to the EPA proposal which was rejected. As you can see, the
mercury emission loadings are much higher around the country. I
want to draw your attention both to the Great Lakes Regions, to
the Adirondacks regions, as well as to the Mid-Atlantic
Regions. These are all dramatically higher mercury loadings.
That mercury, once released to the environment, will stay
there for decades, if not hundreds of years. That is a
commitment not just for this generation, but for future
generations.
The next slide illustrates the weakening changes to current
law. The testimony before you, especially from Governor
Whitman, indicated that it would be better to get these
pollution reductions through a cap. Well, it is a false choice
to say that you have to weaken the current law in order to have
a cap.
The first President Bush did not do that. A cap was adopted
by this Congress for sulfur dioxide in 1990. It has produced
economic benefits. It has produced efficiencies. Not one word
of the existing law was weakened or repealed as a result. You
do not need to do it in this legislation, either.
Finally, since my time is almost at an end, I just want to
say a few words about global warming. This is a problem that
will not get easier by ignoring it. The investments made to
comply with a multi-pollutant bill will be long-term capital
investments. We need to do something about this problem of
global warming in making those investments. For business
certainty we need to do something about this problem to
preserve the option of stabilizing global warming.
Carbon dioxide emissions from the electric sector are 40
percent of U.S. CO<INF>2</INF>. They have gone up by 26 percent
since 1990. That is three times the rate of the increase in the
rest of the economy. They will go up by another 38 percent
between now and 2025, according to the base case analyses. If
we do not do something about this, we will dig ourselves a
deeper hole. We can do something, and we should.
Thank you very much.
Senator Carper. Thank you very much.
Mr. Trisko, welcome.
STATEMENT OF EUGENE TRISKO, UNITED MINE WORKERS OF AMERICA
Mr. Trisko. Thank you, Senator. It is my pleasure.
I am Eugene Trisko. I am an attorney here representing the
United Mine Workers of America. The UMWA is the labor union
that represents the Nation's organized coal miners. The Union
supports additional reductions in SO<INF>2</INF>, nitrogen
oxide, and mercury from coal-fired power plants provided that
the reductions are achieved in a manner that preserves coal
miners jobs.
The Union supports the emission tonnage reduction targets
in the Clear Skies Act and has only a couple of suggested
changes to the bill. We further believe that the time to act on
this legislation is now.
Since 1990, the UMWA has lost thousands of coal mining jobs
as a consequence of fuel switching in response to the acid rain
provisions of Title IV. The Union is very sensitive to the
risks of additional job losses through new clean air
legislation.
For this reason, the UMWA appreciates the concerns that the
Administration has expressed toward its interest in the
development of the Clear Skies Act, including the provision of
incentives to encourage the early installation of control
technologies.
The UMWA became active in the Clear Skies process in August
2001 in response to the release of EPA's initial ``Straw Man.''
The UMWA believes that a single phase approach to reducing
SO<INF>2</INF> emissions can be developed in a manner that
reduces the risk of fuel switching by encouraging the use of
available emission control technologies, thereby maximizing the
co-benefits of mercury reductions.
The United Mine Workers respectfully request the committee
to consider limiting Eastern SO<INF>2</INF> reductions to a
control program with a three million ton cap and a reasonable
final deadline, perhaps similar to the 10-year deadline
provided by the Title IV Acid Rain Program. This will provide
larger emission reductions in time to assist States in
attaining the new PM<INF>2.5</INF> standard.
The Mine Workers agree that differentiating NOx control
requires between Eastern and Western States makes sense in
light of OTAG modeling results showing the miner contribution
of Western NOx emissions to ozone affecting Eastern States.
The Union also supports the mercury tonnage targets and
timetables in Clear Skies. This approach will provide time for
new mercury control technologies to be developed and
commercially demonstrated.
On the other hand, the Mine Workers urge elimination of the
emission auction provisions of the Clear Skies Act. Requiring
sources both to reduce emissions and to pay for auctioned
allowances is a form of double taxation. Over time this new
energy tax would create major disincentives to the use of coal
reserves in eastern States producing higher sulfur coals.
The Mine Workers are concerned that efforts to craft new
clean air legislation should remain focused as the Clear Skies
Act is on reducing the air pollutants contributing to domestic
air quality problems.
Regulating global concentrations of greenhouse gases under
the Clean Air Act is not feasible. Carbon dioxide, the
principle greenhouse gas, is not harmful to human health, and
could not properly be classified as a criteria air pollutant.
Global greenhouse gas concentrations are projected to increase
into the foreseeable future, driven by the economic growth of
developing nations exempt from the Kyoto protocol.
Moving forward on climate change requires a truly global
agreement on greenhouse gases that recognizes the common but
differentiated responsibilities of parties to the Rio Treaty
with an equitable apportionment of emission limitation targets
among all parties.
Mr. Chairman, on October 24, 2001, the presidents of seven
labor unions conveyed their views on this issue to this
committee. A copy of their letter is attached to my full
statement.
Finally, we need to recognize that State utility
restructuring efforts and other economic forces have degraded
the financial health of the electric utility industry. The
industry is littered with companies in or teetering on the edge
of bankruptcy. Under these circumstances, UMWA recommends that
the committee consult with the congressional Research Service
or the General Accounting Office on the financial implications
of the Clear Skies Act and other proposed emission controlled
legislation.
Both the tonnage reductions and timetables for compliance
should reflect sound financial and economic assumptions about
the ability of the industry to comply.
Thank you.
I would request that my full statement be placed in the
record in its entirety.
Senator Carper. Thank you very much, Mr. Trisko.
Mr. Melewski. Welcome.
STATEMENT OF BERNARD MELEWSKI, ADIRONDACK COUNCIL
Mr. Melewski. Thank you. Good afternoon. My name is Bernard
Melewski. I am the Counsel and Deputy Director of the
Adirondack Council. I would like to thank the committee for
this opportunity to be with you today.
The Adirondack Council is a private not-for-profit
organization dedicated to enhancing the natural and human
communities of the Adirondack Park in New York State. The six-
million acre Adirondack Park is the largest park of any kind in
the contiguous Untied States. It is nearly three times the size
of Yellowstone National Park, and almost half the Adirondack
Park is publicly owned and protected as forever wild by the New
York State Constitution since 1895.
Due to its location and its thin soils, the Adirondack Park
has suffered the worst environmental damage from acid rain in
America. Prevailing winds carry power plant emissions from
outside New York's borders into the Adirondack Mountains where
they fall as acid precipitation. The acidity alters soil
chemistry, inhibits plant growth, and releases heavy metals
that are toxic to plants, animals, and fish. Reports conducted
by a host of Federal agencies have shown that more than 500 of
the Park's 2,800 lakes and ponds have become too acidic to
support their native life.
Each spring our waters suffer acidic shock for weeks as the
winter's nitrogen loaded snow pack melts. The Park's high
elevation spruce and fir trees and its spectacular maples are
disappearing at an alarming rate. Every report issued in the
past 10 years reflects these observations and worse and
predicts continuing damage if more is not done to control power
plant emissions.
In 1998 the Adirondack Council was invited by this
committee to testify about S. 172, the Acid Rain Control Act,
legislation then proposed by the late Senator Patrick Moynihan.
We said in 1998 that any new legislation that seeks to bring an
end to the acid rain problem should, at a minimum, contain two
provisions. The same holds true today.
First, build on the successful sulfur dioxide cap-and-trade
program by creating a third phase of reductions of 50 percent
or more. Second, create a new year-around cap-and-trade program
for nitrogen oxides that reduces emissions by 70 percent or
more.
The Clear Skies Act meets and exceeds those emissions
targets. The Clear Skies Act embraces the reductions in the
Moynihan proposal and then goes further with an additional
phase of cuts. The emission caps in the Clear Skies Act will
set the course for recovery of the Adirondacks.
Three years ago when the Adirondack Council last testified
before this committee, Senator Voinovich observed that New York
had to show that we were willing to do what were asking of the
States upwind. Well, Senator, it is done, and we are back.
Last week the Pataki Administration in New York adopted the
toughest acid rain regulations in the country despite the fact
that more than 80 percent of our acid deposition problem
originates outside our borders. We are doing what we can but we
need Congress' help.
New York is part of the EPA brokered 22-State State
Implementation Plan that will reduce nitrogen emissions
significantly during the summer ozone season in 2004. The SIP
call is only a summer seasonal program and will not address in
a significant way the total loading of nitrogen to sensitive
areas. New York will require its power plants to implement
year-around controls immediately under the new regulations.
The Clear Skies Act does not impose those year-around
controls until 2008. The Council requests that the committee
take a look at whether imposition of year-around control
controls could be advanced.
In the markup of Senator Jeffords' bill last session,
Senator Clinton offered an amendment which was adopted by this
committee. The amendment would ensure that the benefits
anticipated by new emission caps were, in fact, occurring in
sensitive areas. If not, the Administrator would have the
authority to reduce emissions from contributing sources to
reduce acid deposition to tolerable levels. We appreciate that
Senator Jeffords has retained the provision in the
reintroduction of his bill this session. We would appreciate
this consideration by the committee.
We would also request that the committee examine whether
there can be faster timetables, especially in the out-years for
the second phases of SOx and NOx reductions in Clear Skies.
Every year that can be gained and every ton that can be saved
will hasten the biological recovery of our forest, our streams,
and our coastal estuaries and will save thousands of lives.
Last spring President George W. Bush visited the Adirondack
Park on Earth Day. He said that he was committed to solving the
acid rain problem. The President chose the occasion of the
State of the Union message to renew that commitment to call for
action this year. The introduction by the leadership of this
committee of the Clear Skies Act is an important step forward.
I want to extend on behalf of the Board of Directors of the
Adirondack Council an invitation to all of members of this
committee to visit the Adirondack Park and see what a wonderful
resource you will save. Perhaps you will have the good future
to hear the haunting call of the loon in the Adirondack
Wilderness and know that the same experience has been preserved
for future generations by the actions you take this year.
Mr. Chairman, the Senate committed itself to the task of
ending the destruction of acid rain over a decade ago. We think
it is time to finish the job.
Thank you again.
I would request that my full statement be placed in the
record in its entirety.
Senator Voinovich. Thank you very much.
Mr. Melewski, I am sorry I was not here to hear all of your
testimony. But you mentioned in the testimony the adoption of
the caps proposed for sulfur dioxide and nitrogen oxide in
Clear Skies will set the course for recovery of the Adirondacks
and the many other acid rain ravaged sections of the country.
If you mentioned this, I apologize. I know we have had some
dialog with your organization last year in terms of the issue
of greenhouse gases. You indicated that you were in favor of
moving forward on these three because you felt that it was time
for something to be done.
Would you comment on your frustration over the last couple
of years with the lack of real movement in terms of making any
difference for your part of the country and why you feel that
not including greenhouse gases is something that you feel
comfortable with?
Mr. Melewski. Well, Senator, if it were just the last
couple of years, we would be happy. It has actually been over a
10-year period. As you know, our organization joined with New
York State in suing the U.S. EPA several times to get reports
out that reveal that the Clear Air Amendments of 1990 were not
adequate to protect the Adirondack Park and many other
sensitive areas.
We have continued to generate and to publicize scientific
inquiries that verify the need for additional action. We have
had a string of our New York Senators--D'Amato, Moynihan,
Schumer, and Clinton--all introducing legislation trying to
make this the No. 1 environmental priority in New York. As I
mentioned in my testimony, Governor Pataki has already
implemented regulations that, in effect, have adopted the
Moynihan proposal.
So the difficulty in the last couple of years has been the
ongoing controversy over carbon dioxide and global warming. We
would be pleased to see a bill move out of this committee and
onto the floor that has provisions on climate change and global
warming. We would not be pleased to see any controversy or lack
of agreement on that one issue keep us from moving forward on
the very desperately needed measures for sulfur, nitrogen, and
mercury.
Senator Voinovich. I think last year when we contacted you,
you indicated that same position. I think at that stage of the
game you were in favor of a more aggressive program that we had
talked with you about. It was not Clear Skies.
But you feel that the numbers in Clear Skies will move down
the road and start making some difference for you?
Mr. Melewski. Yes, absolutely. As I stated in my testimony,
the Moynihan legislation represented the minimum that needs to
be done, in our opinion, to change the course of direction in
the Adirondack Park. Clear Skies meets those same standards and
exceeds them. In fact, all the major proposals that have been
introduced in this committee, or are about to be introduced, as
Senator Carper mentioned, would resolve the acid rain problem.
The facts are that the faster we get the cuts and the
deeper the cuts are, the quicker the biological recovery will
occur in the Adirondacks. If we had to choose between deeper
and faster, faster would be the choice.
Senator Voinovich. You just want to get going?
Mr. Melewski. We just want to get going.
Senator Voinovich. Mr. Rogers, obviously one of the major
drivers for Clear Skies is the need for regulatory certainty.
Can you explain why certainty is so important to your company,
especially with regard to your need to raise capital that will
fund the pollution control projects that you need in the
future?
Once you have answered that, I would be interested in your
comments about living in this regulatory environment that we
have been in for the last couple of years. What impact do you
feel it has had on your ability to make the air cleaner,
improve public health, and provide more efficient energy?
Mr. Rogers. The key to certainty, Senator, really is having
a road map so that you can do the work in a systematic way on
each of your power plants. What that requires is knowing what
the SO<INF>2</INF> regulations will be, what the NOx
regulations will be, what the mercury regulations will be. We
sit here today with no clarity with respect to what those
regulations will be in the future.
What Clear Skies offers is a clear path. It allows us to
time investments. Our company's balance sheet was under
tremendous pressure. Many of the coal-fired utilities' balance
sheets have been under great pressure of just complying with
NOx.
This work on the back end of your plants is in terms of
building scrubbers, but at the same time maintaining the
reliability of your system. If you phase it in over the right
period of time, not only do you maintain the integrity of your
balance sheets, you attract the necessary capital to make the
investments, but you smooth out the impact on consumers over a
period of time rather than having steep increases.
The primary reason we support Clear Skies is that it gives
a clear path and allows you to plan investments, to plan
construction, and at the end of the day, it translates into
delivering cleaner power at lower cost.
One of the challenges we have had, is there has been so
much litigation, for instance, around NOx. The time lines have
been compressed, and that translates into greater costs and a
greater need for workers that are qualified. We also need to
make the right investments.
So from our standpoint, timing matters. The sooner we know
the plan, the sooner we go to work. We are able to execute this
over a period of time and that translates into lower costs for
consumers. That is very important.
Senator Voinovich. We have to strike a balance. We heard
from Mr. Hawkins that we ought to move forward. When do you get
to the point that you say to your shareholders that it is
better for us to fuel switch to natural gas? If that happens,
then as I mentioned in my opening statement, you then have a
situation where the cost just skyrockets. You have a lot of
people to just pick up and leave.
Where is that balance? We are talking about numbers and we
are talking about time. You want to strike that. What is your
reaction?
Mr. Rogers. I think the industry has actually,
interestingly enough, almost defaulted to a place where we have
increasingly become dependent on gas-fired generation. As I
mentioned, as an industry, we have built 10 years of capacity
in a 3-year period. It is all gas-fired. No other time in our
history have we been so dependent on one fuel.
Our company, for instance, has added 2,000 megawatts of
gas-fired peaking. We are converting one of our small coal
plants to gas. But at the end of the day, there are limits on
how much you can switch to gas. I think you already see that.
Nobody in their right mind is going to plan to build a coal-
fired plant which takes five to 7 years to build when you do
not know what the regulations will be with respect to SOx, NOx,
or mercury.
It leaves the industry in a place where you continue to
default to gas-fired peakers. That is not the long-term
solution for this country, to become so dependent on one fuel.
Senator Voinovich. Let me tell you what worries me. If you
have reached that point where that decision is made for fuel
switching, it impacts on your industries. Your industries
leave. As I told Senator Jeffords last year, they are not going
to Vermont. They are going somewhere else.
I do not think a lot of people who are involved in this
issue understand how devastating natural gas prices are today,
not only on heating costs but what they have had on electric
costs. We move the jobs out of the United States to some other
place that burns coal. They do not have the types of
environmental concerns, and in terms of the environment of the
world, we have made no progress.
If you can keep the pressure on to get you to use clean
coal technology and other technology for mercury and other
things, that you keep the jobs here, you develop the
technology, and then you can either sell or give that
technology away to other countries in the world that are going
to be out there manufacturing this stuff. That is the delicate
balance that we have to try to achieve.
Mr. Rogers. Unfortunately, Senator, there is no silver
bullet for these issues. We have to invest in technology. At
the same time, we have to work to help our customers become
more efficient in terms of their use of energy. At the same
time, if we do not pay attention to the supply/demand balance
on the gas side and if we continue to default to more and more
gas-fired generation, that is going to translate to times where
we could not run some of our gas-fired units when we needed
them because there was no capacity in the pipelines. You need
that kind of infrastructure investment that had not occurred.
You need to look at the prices this summer and the number of
plants that shut down for the short term--but it could be for a
longer term.
One of the great fears of the gas industry is that the
volatility of the gas prices and the rising gas prices forces a
lot of industries, as you suggested, to basically pack up and
leave town and leave the country. That is not a good answer
long term for creating jobs.
What I worry about is jobs. We are in an economy where the
growth is only two to two-and-a-half percent. That is still
better than other parts of the world, but not what we expect,
and not what we hope for. If prices of gas continue to go up
and we do not use the resources that we have in an
environmentally responsible manner, we have created a death
spiral for ourselves that makes it even more difficult for us
to succeed as a country.
Senator Voinovich. Thank you.
Senator Carper?
Senator Carper. Thank you, Mr. Chairman.
To each of our witnesses, we are glad you are here. We
appreciate your testimony and your responsiveness to our
questions.
I do not mean to pick on you, Mr. Rogers. Let me just ask
my first question of you and then we will pick on some others.
I want to read you a statement by a leader of a major utility
company. I just want you to listen to it and then react to it,
if you do not mind. It is quote. It goes back to sometime in
2001. It says:
``My company seeks comprehensive multi-emissions power
plant legislation because we want long-term clarity and
certainty built into our environmental compliance and planning
process. This kind of reasoning dictates the necessity of
including a carbon commitment in the legislation. Without some
sense of what our carbon commitment might be over the next 10,
15, or 20 years, how can I or any other utility CEO have an
adequate picture of what the future requirements our plants may
face? How can we prudently plan?''
You probably recognize those words because they are your
own. Those were words that I am told that you stated in a
presentation in September 2001 before a forum on applied
research and public policy.
I do not recall everything that I say anyone that I suspect
any of the rest of us do. But I found that to be a powerful
statement and one that I certainly welcome. I do not know you
well, but I know your reputation, and your reputation is a
person who says what he thinks and someone who can take what he
says to the bank.
I presume you meant what you said in 2001. I would just
like to ask you to reflect on what you said and think about it
today.
Mr. Rogers. Thank you. My staff read that back to me in
preparation for today.
[Laughter.]
Mr. Rogers. I am here to say that it was just as brilliant
then as it might be perceived today. Let me make a point--and
this is from a personal standpoint and not speaking for EEI. I
am just speaking for Jim Rogers, CEO of one company.
We burn 30 million tons of coal a year. We have significant
emissions. As a consequence of that, we have a responsibility
to get it right, not only with respect to our emissions, but
with respect to the costs to our consumers. I am concerned
about climate change. I think it is an issue that we need to
address. But we need to have in this country reasonable
expectations about what is possible.
Yes, we want certainty. One of the things I said in a more
detailed way is that we need to find a way to take a risk at
first strategy that allows us to flatten the curve. I think the
reduction in carbon intensity is a step in that direction.
There has been a number of voluntary steps that we have taken
as a company, and in fact, that our industry has taken, to
reduce CO<INF>2</INF> emissions. These are all steps in the
right direction.
But unfortunately we cannot have the certainty that we
desire. One, we have yet to find a technology that really
reduces CO<INF>2</INF>. That is an issue. We have not found a
substitute for the coal-fired plants and gas-fired plants that
we have in this country. Yet, we still have a requirement to
keep our TVs on and to run our computers and to maintain the
lifestyle that we have grown accustomed to.
I think we need to go to work. I think we are going to
work. There are many voluntary programs, first steps, good
steps, more investments in technology. But we need to work to
reduce our carbon intensity. We have taken steps in that
direction.
I believe this is an issue that we will not go away. It is
an issue that we have to deal with. But I do not think at the
end of the day--and I going to be blunt with this point--there
is a lot of theology around it also. I will not dare go there.
I will leave that to you.
But I think the importance of making progress on SOx, NOx,
and mercury is great. I look to the difficulty that the Senate
had in just coming together around the simple question of
reporting emissions. I think that will become even more
difficult to do more than even that.
I am a realist. I say and I urge you to think. We need to
make progress with SOx, NOx, and mercury. Let us not fight for
days and months and years around CO<INF>2</INF> while we ignore
making progress on those three pollutants. I would urge you to
continue the debate, to continue the investigation, to continue
the investment in new technologies, and to continue to issue on
the front burner, but not delay moving forward on these other
things, waiting to come up with the perfect solution for that.
In an ideal world I would love for it to happen. But I do
not think it going to happen for the reasons I stated.
Senator Carper. About once a week I hear someone here on
Capitol Hill say, ``Don't let the perfect be the enemy of the
good.'' I was very encouraged when I read your statement. I
realize there was something said about 18 months ago. I
appreciate the way you have spoken today--I think from your
heart.
I would just like to my colleagues on my right and my left.
I think there are other CEOs of utilities around this country
who share that conviction, who are not comfortable with the
idea that we are putting as much carbon into the air from a lot
of sources as we are and what the long-term consequences for
us, whether we are in Tupelo, Mississippi, Cleveland, Ohio,
Vermont, or Delaware.
I want to ask a question, if I could, of Mr. Trisko. You
may have been in the room earlier in the day when I introduced
myself as the only native-born Senator from West Virginia and
one who still has a lot of family in West Virginia and who goes
back there from time-to-time for a reunion at Grand View State
Park. If I would take a course here in Congress that undercut
coal, I could go back to the reunions, but I would not be as
warmly welcomed as I might want to be.
I would like to ask you to share with us what are some
recent developments, particularly as we look forward, to being
able to use our abundant coal resources, to use them to create
energy, electricity, but to do so in a way that we do not have
problems with the kind of problems we have had in the past with
coal with respect to SOx, NOx, and mercury.
I have heard just in the last 24 hours some really
inspiring information about reductions in those emissions from
coal, and from a coal that has been turned into a gas. Talk to
us about that kind of technology.
Mr. Trisko. Senator, I would be happy to, on a couple of
levels.
First, in terms of the pragmatic and what is necessary for
utilities to achieve the kinds of reductions that are called
for by Clear Skies. There has been very significant progress
made in the last decade in particular on technologies that
reduce SO<INF>2</INF> emissions and NOx emissions.
Scrubbers, particularly the so-called magnesium-enhanced
limestone scrubbers--lime or limestone, but those that utilize
a magnesium enhancement--are capable of achieving in excess of
95 percent removal of SO<INF>2</INF> at a quite reasonable cost
per ton. In some cases, it is 98 percent or more. As a
byproduct of the scrubbing process, you also achieve mercury
reductions.
NOx technology improvements also are notable. In the last
few years, largely as a result of the emphasis on reducing
transported ozone in the Eastern United States and the
development of EPA's SIP call, the commercial development of
selective catalytic reduction technology has progressed quite
rapidly. It had been used in Europe and in other countries. It
is our understanding that SCR technology now is capable of
achieving NOx emission rate limits at coal plants of NOx at 0.7
pounds. That would be for a large base load plant application.
One of the greater difficulties that we see in terms of the
pragmatic here and now in complying with multi-emission
legislation really is in the mercury area. While it is true
that the use of conventional emission control technologies such
as scrubbers--and some particulate control equipment--reduces
mercury as a byproduct, we do not have a commercially
demonstrated system.
The activated carbon injection technology that EPA relies
upon largely in its models to estimate the prospective costs of
mercury of Clear Skies, that technology has only been applied
at a handful of plants on a demonstration basis. Those plants
were selected based on the generous size of their particulate
removal equipment. They may not be representative of the
hundreds of coal plants that do not have that particularly
generous particulate electrostatic precipitator configuration.
Looking forward over the longer term, there certainly is
reason for optimism in terms of the development of advanced
clean coal technologies going beyond conventional pulverized
coal systems, such as integrated gasification combined cycle
equipment that will virtually eliminate the emissions of
criteria pollutants, and as a consequence of their improved
thermal efficiency, also make great progress in terms of carbon
reductions.
But for purposes of legislation or regulation at the
current moment, we are not quite ready for prime time in terms
of those systems. That is why the kinds of programs that the
Administration is advancing through its clean coal technology
programs to us makes sense as a form of insurance. We are not
just the Saudi Arabia of coal. Our coal reserves in their
energy content are equivalent to the world's known oil
reserves. But those kinds of technology developments make a lot
of sense to ensure that that resource in the future will be
available for our use.
Senator Carper. Thank you.
Mr. Chairman, if we have a chance to ask a couple of other
questions later, I would like to. My time has expired for now.
Senator Voinovich. Senator Jeffords.
Senator Jeffords. Mr. Hawkins, I would like to know if you
have any comments on the EPA or the other witnesses' testimony
that you have not had a chance to make and would like to make.
Mr. Hawkins. Yes, Senator Jeffords. Maybe I will make a
comment on a theme that has been raised by a number of Senators
and the panel, and that is the topic of coal. The fact is that
the status quo is not good for U.S. coal, in addition to being
not good for the climate.
The current uncertainty about what is going to happen with
climate policy is causing investors to behavior rationally.
What do I mean by that? They are not investing in coal. The
forecast for new capacity in the United States is not going to
coal. It is going to natural gas. Because of that uncertainty,
the only entities that are proposing to build coal plants are
coal companies. With few exceptions a power company will not
even make the effort to try to permit a significant coal plant.
Basically, the uncertainty about global warming policy has
caused people to be nervous about investing in conventional
coal. And that uncertainty has caused them to not have
sufficient incentive to invest in advanced coal technologies
either.
Senator Carper asked the question about technologies for
carbon. In his own State, Delaware, there is advanced
technology in operation today at the Motiva Refinery. The feed
stock is not coal. It is petroleum coke. But the technology is
basically the same. It is commercially demonstrated. You put
the coal or the petroleum coke in there. You gasify it. Then in
order to manage the carbon, you need to capture the carbon and
you need to do something with it.
In this country we are storing CO<INF>2</INF> for purposes
of oil recovery in enhanced oil recovery operations. We are
storing 30 million tons of it a year. All of the elements of a
strategy that would allow coal to continue to be used, and
decouple it from a global warming problem, are out there today.
They are not being used in an integrated package because there
is absolutely no market incentive to do so.
That is going to stay that way until this committee starts
the process rolling. It is not too soon to start it. We can
develop a program that sends the signal that gets people moving
and gets the investors making the right decision. Eugene Trisko
and I could sit in a room and come up with something. I think
it would address the needs of the coal industry and it would
address the needs of protecting the climate. It would provide
business certainty. I think it would address Jim Rogers' needs
as well.
We just have to get over what is an irrational fear of
addressing this issue. It will not get easier. The longer we
ignore it, the harder it will get.
Senator Jeffords. Thank you. That is very helpful.
Mr. Colburn, what would Clear Skies do to your State's
abilities to protect public health, achieve attainment, and to
operate their existing pollution control programs?
Mr. Colburn. Senator, there are several ways that State
authorities would be impacted. I have listed several on an
attachment to my testimony. Perhaps rather than go through
those individually, I will cover just a few of the high points.
The most important aspect of your question is what happens
following whatever Federal solution or Federal reductions
emanate from a bill passed by Congress this session. Under
Clear Skies, for example, it is not clear that the reductions
achieved will produce attainment everywhere in all the States.
Under Federal law now, the States have the responsibility for
achieving Federal health-based air quality standards.
If the States lose any of their current regulatory
authorities as a result of Federal multi-pollutant legislation,
it is not clear what mechanisms they will use to fulfill this
responsibility to achieve attainment. One of our biggest fears,
then, is the apparent reduction in State authorities that are
incorporated in the Clear Skies proposal. We feel, as I
indicated in my testimony, that it is a far safer and far
better approach for States to retain all the authorities that
exist in the current Clean Air Act and not need to use them if
attainment is reached everywhere or is easily reached with a
few additional mechanisms that States impose. This approach is
much more likely to guarantee that healthy air quality is
achieved than depriving States of those tools, as called for in
some of the provisions of Clear Skies.
If the tools are not used, that is wonderful. A State that
is in attainment cannot use Section 126, for example. I think
that is the outcome we all want.
In addition, there are other hazardous air pollutants
besides mercury emitted by the power sector. It may be that
scientific investigations now under way show that several of
those should be regulated in form or another. States currently
have the authority to do so.
That authority is deleted under Clear Skies. There is a
little bit of a question about this, Senator, but it even
appears that under Clear Skies State actions to go beyond
Federal requirements to meet their State SIP requirements, may
be prohibited or constrained.
Essentially the States feel that while Clear Skies itself
represents a good step in the right direction, perhaps not as
far, or as fast, or for as many pollutants as need be, they are
fundamentally getting their arms tied behind their back in
exchange for that down payment of initial reductions. It is not
clear to us that that will end up being a good trade in the
end. We are concerned about that.
Senator Jeffords. Thank you.
Mr. Trisko, would your Union support a CO<INF>2</INF> cap
that would produce no significant impact on domestic coal
production?
Mr. Trisko. Senator, that is a hypothetical question. I
learned in law school a long time ago to avoid answering
hypothetical questions, but I would be happy to comment upon
the question.
First of all, I am not at liberty to state whether
President Cecil Roberts of the United Mine Workers would or
would not support such a hypothetical cap. You would have to
address the question to him directly. But that being said,
given the wealth of analytical evidence that is available to us
through the studies that have been done leading up to Kyoto and
subsequent to Kyoto for the design of an alternative ``Kyoto-
lite'' approach, however it might be characterized, we have yet
to see a program that would cap domestic utility carbon
emissions that would not have adverse effects upon coal
consumption.
One analysis that has been made available to us was done by
a private group--for the bill that Senator Carper is currently
associated with--analyzed the prospective impact of those
emissions caps on the domestic utility industry. It suggested
that in the worst case the bill could be associated with a 41
percent reduction of coal utilization.
We would like to see and encourage the committee to pursue
additional analyses of alternative measures. In fact, when the
mine workers were approached last year for their prospective
support to Senator Carper's proposal, that was our request. We
want to see the numbers. We want to understand what the bill
would do.
Senator Jeffords. Thank you.
Mr. Melewski, why does the Adirondack Council support
legislation that eliminates the New Source Review Program?
Mr. Melewski. Well, Senator, first of all, I do not think
the Clear Skies program eliminates the New Source Review
Program. There is a moratorium on new initiatives for a period
of years. There is a troubling new standard that is provided in
the Clear Skies bill. We do not offer any particular expertise
in those provisions. They have been intensely discussed since
the bill was introduced. I know that many members of the
committee have problems with them.
We can offer a simple solution that is one that was taken
in 1990 which is to keep the existing Act in place and create
new programs on SO<INF>2</INF>, NOx, SOx, and hopefully
something on the climate change.
Senator Jeffords. Mr. Chairman, that exhausts my present
desires to pursue anything more. We will expect the answers to
our questions that have been submitted.
Thank you.
Senator Voinovich. Thank you.
I just have one last question for the panel. You have all
heard each other comment about each other's testimony. Would
any of you like to comment on any of your fellow panelist's
testimony?
Mr. Colburn?
Mr. Colburn. Thank you, Mr. Chairman. I would make one
comment. I think Mr. Trisko raised an extremely important point
when he suggests that at the current time the situation is
such-and-such. I would remind the committee that we are not
talking about the current time. We are talking about 15 years
from now.
The reason that is important, Senator, is this. I was the
Air Director of the State of New Hampshire in 1995 when we
installed the first selective catalytic reduction NOx control
technology (SCR) on a coal-fired plant in, I believe, the
world, but certainly in America. Soon after that, there were
deliberations as part of the OTAG process (Ozone Transport
Assessment Group), in which industry indicated how impossible
it was to secure the steep reductions in Nox reductions that we
were already getting. I was the only guy there with canceled
checks about how much it would actually cost to control NOx.
That process essentially took 6 years--1995 to 2001. Now,
we are looking at the ability to replicate a 6- or 7-year
process like that--twice--before Clear Skies would be fully
implemented. In terms of coal use, I think there is a strong
technology opportunity for the integrated coal gasification
that Mr. Trisko and Mr. Hawkins mentioned that could create a
bright future for coal. This technology would preserve and
potentially even increase coal usage while diminishing
dramatically its environmental impacts.
Right now there is an energy penalty for coal gasification.
In the way we use coal today, we are paying a health penalty.
Let us pay the energy penalty instead, and stop paying the
health penalty, and do so in the next 5 or 6 years instead of
the next 15 years.
All of this can be done. It has been done. It has been done
at less cost than EPA ever estimated, just like the acid rain
program. We do not have to have it all in the bag today. We
have seen in the past the progress that has been made when we
set our minds to it.
Perhaps my favorite saying is: If you ask an engineer to do
something, you will get nothing but problems--why it cannot be
done as fast, what could go wrong, and so forth. But if you
tell an engineer to do something, you will get nothing but
solutions.
That is what has happened in the past, Senators, when
Congress told the engineers and companies like Mr. Rogers' to
do something. They go to it and achieved spectacularly beyond
our expectations. They will do so again.
Senator Voinovich. As a Governor of a State that encouraged
a company to put on a $650 million scrubber at the Gavin Plant,
an extraordinary amount of money has gone into these
investments. This new SER technology was done at Gavin. They
had to buy out a town in the vicinity there because of a plume
that settled over the town. They just finally just bought the
property.
I think this concept of this technology is around the
corner. We have a long way to go. It is very expensive.
One of the things that puzzles me is that last year Tom
Moynihan from Catholic Charities testified about the cost of
energy on poor people. Clean Air Trust put them on. He was the
villain of the month because he testified about that.
You talked about deaths of 30,000 people. If they cannot
afford their energy cost and they cannot afford their air
conditioning, then they die. You talked about individuals that
lose their jobs. They go overseas and they do not have the
money to pay for health care, they are not in very good shape.
It is very disturbing to me. It is very typical here in
this Congress. We do not really very often put each other's
shoes on and try to work with each other to figure out how
things should be worked out. That is why we are not really
getting very far here. It is a very frustrating place to be for
me as a Governor and as a Mayor who was able to try to work
things out.
Mr. Trisko, I would like you to comment.
Mr. Trisko. Senator, thank you. In exchange for your
remarks, I will be quite brief on this subject. To paraphrase
the gentleman from Tupelo, it is now or never for this
legislation. It is now appropriate for the Congress to move a
three-pollutant bill. If Congress delays and there is further
inaction, we may lose the opportunity to realize the benefit of
the public health and environmental protections that the bill
offers.
Mr. Rogers. Mr. Chairman, I would like to echo Mr. Trisko's
comments. I do think now is the time. I think one of the themes
that is consistent among all of us here today--and I have tried
to listen carefully to the themes--one of the themes that
emerges is that the Clean Air Act is not working. It needs to
get fixed. Now is the time to fix it. I think everybody here
recognizes that.
My dad was a lawyer. He used to say that the devil was in
the details. My mom quickly responded that God is in the
details. The way I understand this issue I think there are
enough details for the both of them.
I would urge you to roll up your sleeves as you do, and you
have, and you did as a Governor, and go to work. Work through
the details, find the right sets of compromises, and go to work
so that we can turn our engineers loose. We can turn our people
loose and go to work and solve the problems in a way that
allows us to meet our energy goals, meet our environmental
goals, keep our economy going, and keep jobs in the U.S. That
has to be an important ingredient in this whole discussion.
Senator Voinovich. Mr. Hawkins?
Mr. Hawkins. Senator, if I might make a comment on costs.
Of course you are right. It is important to consider the costs
of policies you adopt. But EPA has done that consideration and
it has presented you some of that information. That is more
that they have to present. If requested, perhaps they would do
so.
But the analyses that they have conducted, for example, of
the more protective option that the Administration rejected,
had a compliance cost of $10 billion a year. Those are EPA's
calculations. The electric sector revenues in 2020, which is
the forecast year, are $330 billion. So $10 billion is a lot of
money. But $10 billion as an addition to a $330 billion total
is a small amount of money. It is about a 3 percent increase in
the cost of generating electricity. That is not a large amount
of money.
The same analysis was done to examine a policy that would
have capped emissions at 75 percent reductions for SOx, NOx,
and mercury, and imposed a carbon cap at year 2008 levels. That
analysis was done in response to your request to the Energy
Information Agency back in the spring 2001.
EIA came back and said that that would raise the average
electricity rate from 6.7 cents per kilowatt hour to 7.1 cents
per kilowatt hour. That is about a 5 or 6 percent increase.
In terms of poor people's needs, of course those should be
addressed. Senator Jeffords' bill has provisions in it which
could be incorporated into a piece of legislation that calls
for establishment of a public trust that could make funds
available for things like lifeline rates and other purposes to
make sure that there is no adverse impact while we actually go
about protecting health and starting to address global warming.
There are ways to solve these problems. We want to work
with you to try to find them.
Thank you.
Senator Voinovich. I do a lot of meeting with people in my
State. We are in a global market place. It is very interesting
that another great cost that they all have is health care
costs. They are competing with other countries that do not have
the same health care costs. You just start adding all of this
up. It is not really a rosy scenario about jobs in this country
and where are going. I think we have to realize that we are in
a global market place and that the environmental concerns that
we have also have to be balanced with the economic concerns of
the people in our country.
Senator Carper has one more question. I think we will then
wrap it up.
Senator Carper. Thank you, Mr. Chairman.
In your testimony, Mr. Colburn, I believe you said--and I
am going to paraphrase you--you said that carbon does not need
to be onerous. It does need to be in the bill.
Give us some idea of the approach you would have us take
with respect to carbon.
Mr. Colburn. Senator, I think that even the greatest
trading foes admit that trading of carbon dioxide does make
sense because its impact is global. There are no local impacts
from climate change. It is all global impact. There are impacts
that happen locally, of course. But carbon dioxide's impact on
climate change is a global concern.
While many horror stories have been suggested about carbon
taxes or carbon control costs in the $25, $50, or $100 range
per ton, I think an effective mechanism could be established--
probably through a cap, but a lenient enough cap such that the
effective price of carbon were very small at a very small cost.
I would rhetorically argue for perhaps 25 cents per ton.
The important thing is what you said before, Senator:
Markets work. Well, if markets work, let us get carbon in the
market. Let us not pat it on the head and give it some
technology development money and shoo it away. Let us get it in
the market. Let us do so in a way that is not terribly onerous
with a cap that does not create a substantive burdens for Mr.
Rogers' company and other utilities. But let us let the market
work on carbon.
Senator Carper. Senator Voinovich was talking earlier about
the economic impact of what we are discussing here. To the
extent that we drive up the cost of energy for our consumers,
including for industry, manufacturing businesses as well, there
is a concern that we hasten the exodus of manufacturing jobs
from this country. We ought to be concerned about that. I know
that I am. We ought to be concerned about the out-of-pocket
costs for consumers for buying their electricity. We are all
mindful of that.
Earlier I said in my questioning of another witness, that
the Clean Energy Group has actually done an analysis of a 4-P
bill which includes carbon dioxide, and concluded that if we
added a fourth pollutant, carbon dioxide--to a 3-P bill, SOx,
NOx, and mercury--that we would see over the next 15 or so
years an increase of about 1.5 percent the cost of adhering to
emissions requirements.
It is not free, but it is 1.5 percent. It does provide a
measure of certainty. To this Senator and former Governor who
cares a lot about economic development and maintaining jobs,
where do we do reach a tradeoff? What is acceptable--a 1.5
percent increase? Those are not my numbers. Those are the
numbers from the Clean Energy Group.
But to have the kind of certainty and arguably taking real
steps toward addressing global warming, is that an unreasonable
tradeoff? I would ask any of our witnesses to respond. Mr.
Trisko?
Mr. Trisko. Senator, my first question with respect to the
economic impact that you cited from that study was whether the
Clean Energy Group had analyzed the impact of the proposal
nationally or whether that was an impact related to its
generation sources. The Clean Energy Group is primarily fueled
by oil, nuclear, and natural gas. It has some coal generation,
but it is not representative of the Nation's coal-fired
utilities.
Senator Carper. I understand that it is national. It is not
just the Clean Energy Group. It is national, which I think
makes it even more of significance to us.
Mr. Trisko. One of my previous responses to the committee's
questions encouraged the committee to pursue analyses through
EIA, EPA, and others, of alternative approaches. We would
certainly be interested in seeing that study when it is
released.
My second point with respect to the reasonableness of the
impacts is from a more global perspective. I have attended
every international negotiation session since the Rio Treaty
was negotiated in 1992--Geneva, Bonn, Kyoto, Buenos Aires and
others.
We have in the climate change arena an extremely serious
breakdown of the negotiation process that must be remedied. If
you believe in the seriousness of the problem, and you believe
the science in all good faith, that international breakdown
must be remedied if progress is to be made on this front. The
developing countries, led by the G-7 and China, essentially
have repudiated any effort, however offered in good faith to
discuss future limits on the growth of their emissions. These
are not absolute constraints or cutbacks or rollbacks, but
merely to discuss future limits on the growth rates of their
emissions.
The United States put forward an ``evolution'' proposal in
Kyoto in 1997 that said, ``Listen, we, Annex One industrial
countries, we are meeting here in order to agree on substantive
emissions reductions. But we have a political problem.
Recognize our political problem. We cannot go back to our
capitals. We cannot go back to Washington empty-handed and say,
we have just agreed to negotiate among ourselves--Europe, the
United States, and Japan--a set of emission reductions. We need
to have some sign from you, from India, from China, from
Brazil, from Korea, from Mexico. We need some sign that after
we meet our reductions, that you will then be willing to sit
down and talk about future limits so that we can have a global
agreement.''
That proposal, which we put forward through New Zealand--
they tend to be more articulate than we are, and they sound a
lot more diplomatic--that proposal triggered a 5-hour
filibuster. It subsequently led to the removal of the issue of
evolution from future United Nations meetings. We must solve
this fundamental problem at a global level before we can make
progress on the issue of climate change.
Senator Carper. I think that is a good cautionary note. I
do not know these numbers off the top of my head. It would be
interesting to know, to the extent that there is carbon dioxide
that is emitted from manufacturers, from utilities, and from
other sources, what portion of global CO<INF>2</INF> emissions
from the U.S. versus some of the other nations that you have
mentioned.
That does not take away from the validity of the point that
I think you are making.
Mr. Hawkins, do you have a closing comment?
Mr. Hawkins. Yes, I agree with Eugene Trisko that we need
to have an effective strategy for addressing the engagement
with developing countries. But sitting back and telling them
that they should shape up is not an effective strategy. An
effective strategy is using good old fashion American know-how,
applying it to the job, showing the world that it is easier to
solve this problem than they think, and that they need not be
afraid of it. We can do that.
We have the capacity in this country, the biggest economic
power on earth, to prove out these technologies. When you are
out of the room, Senator, I mentioned the Motiva Refinery in
your own State, which is operating gasification technology to
convert a filthy fuel, petroleum coke, into a clean energy
source. That same technology can be used, and would be used, if
we start to apply the market signal that Ken Colburn is talking
about.
When we do that, we will have something to talk to China
and India about. China is going to build 500 gigawatts of new
coal-fired capacity in the next 30 years. We will have
something to talk to them about. We will say, ``Look what we
are doing in the United States. We are evolving into modern
technology. We are going to use our coal without messing up the
planet with climate change. You can do it, too.''
We are actually demonstrating that it is affordable. That
is what we can do and that is how we can start to break these
logjams.
Senator Carper. In response to what Mr. Hawkins has said,
we worry a lot about the exporting of manufacturing jobs. I
know I do. I know others do. Would it not be great if we could
somehow export technology to address these kinds of concerns.
Mr. Rogers, your quick comment.
Mr. Rogers. Senator, let me make an observation with
respect to that study. While I have not studied it in great
detail, I would observe that it is a national number. Let us
not forget that any kind of legislation that adversely affects
coal is going to have a disproportionate impact on the Midwest
and the Southeast.
I think we really need to keep that in mind. Since I am in
the Midwest, I know we serve the steel industry, the auto
industry, and the chemical industry. They are going to be
adversely impacted in a dramatic way.
While it is interesting to have a national number, when you
look at the Midwest where 80 percent of its energy comes from
the burning of coal, we need to remember it is going to have a
disproportionate impact on that part of our economy. That is
the industrial heartland of this country.
With respect to the whole carbon issue worldwide, let us
not get fooled with even the European countries. While they
stepped up and gave lip service to Kyoto, countries like
Germany, for instance, have agreed with the Green Party to shut
down their nuclear units. How are they going to serve their
demand in that country and reduce their emissions? They will
not and they cannot.
The same is true with Spain. We used to own wind farms in
Spain. We saw that they started to change how they dispatch
renewable. We started to discount it. We sold our assets and
left. While they pay lip service to it, the reality is that
their day-to-day behavior indicates anything but the capability
to achieve those targets. We need to be circumspect in our
approach and not get tricked by the lip service that others may
pay.
Senator Carper. Mr. Chairman, I have no more questions.
I would like to make a quick brief comment. I am encouraged
by today's hearing. I am encouraged by what I have heard here
and in other earlier witnesses. I am encouraged by the kind of
comments that Mr. Rogers made today and his comments of
September 2001. He spoke with sincerity then and today.
Mr. Trisko's explanation and description of the kind of new
technology which would enable us to pull coal out of places
like West Virginia and to use it in its abundance in ways that
do not harm our environment and our air in the way they do.
Jim Riley, who sits right behind me, reminded me of a visit
that we paid to W.L. Gore. They make Gortex, but they make a
lot of other products as well, including an infiltration system
that is being used on a demonstration model down in North
Carolina. The demonstration project is run by the EPA. They are
removing mercury out of the air emissions by more than 95
percent. I am encouraged by that kind of technology and the
potential of what they can mean to us for cleaner air, and at
the same time to enable us to stay in business and to be
competitive as a Nation.
Each and every one of you is most welcome. Thank you all.
Senator Jeffords. Mr. Chairman, I have a question. I ask
that three documents we have be made a part of the record. It
is an analysis of the bill and two lists of studies of mercury.
Senator Voinovich. Without objection.
[Material to be supplied follows:]
Senator Voinovich. Mr. Melewski, do you have a quick
statement to finish up?
Mr. Melewski. Yes, I have a quick statement. It is a more
esoteric observation about climate change.
I testified today that in 1998 we were here and had asked
for similar changes to the Clean Air Act. My recollection is
that the representative from Cinergy testified that it saw no
reason to see a change in the Clean Air Act. Now we are here
with Mr. Rogers 5 years later. We are both asking this
committee to work together, to put a bill together, and move it
to the floor. I think that is a significant climate change.
Mr. Trisko. Evolution.
Senator Voinovich. Mr. Rogers said to us today, ``It is
time to move forward.''
With that, we are adjourned.
[Whereupon, at 5:08 p.m., the committee was adjourned, to
reconvene at the call of the chairman.]
[Additional statements submitted for the record follow:
Statement of Hon. Christine Todd Whitman, Administrator, U.S.
Environmental Protection Agency
I. INTRODUCTION
Thank you, Mr. Chairman and Members of the committee for the
opportunity to speak with you today about the Clear Skies Act of 2003.
Based on one of the most successful programs created by the Clean Air
Act, Clear Skies is a proposal to substantially reduce emissions of the
three most harmful pollutants from power generation and to do so in a
way that is much faster and more efficient than under current law. As
President Bush said in the State of the Union Address, Clear Skies will
advance our goal of ``promot[ing] energy independence for our country,
while dramatically improving our environment.'' The Administration is
committed to working with this Subcommittee and Congress to pass
legislation this year. The widespread support for multi-pollutant
legislation to reduce power plant emissions is a strong indicator that
the time for action on this critical issue is now. Failure to enact
Clear Skies this year will delay important public health and
environmental benefits.
This country should be very proud of the progress we have already
made in cleaning up our air. Since the Clean Air Act was first enacted
in 1970, we have reduced emissions of the six primary air pollutants by
25 percent. During the same time period, the economy has grown
significantly the Gross Domestic Product increased 160 percent; vehicle
miles traveled increased 150 percent; energy consumption increased 40
percent; and the U.S. population increased 35 percent.
Although we have made much progress since 1970, we still face major
air quality challenges in many parts of the country. Clear Skies is the
most important next step we can take to address these challenges and
achieve healthy air and a clean environment for all Americans. Clear
Skies would make great strides toward solving our remaining air quality
problems in a way that also advances national energy security and
promotes economic growth. It would reduce power plant emissions of
SO<INF>2</INF>, NOx and mercury by approximately 70 percent from
today's levels and do it faster, with more certainty, and at less cost
to American consumers than would current law. Last year's EPA estimates
project that, over the next decade, all the programs of the existing
Clean Air Act would reduce power plant emissions of SO<INF>2</INF> and
NOx by approximately 23 million tons. Over the same time period, Clear
Skies would reduce emissions of these same pollutants by 58 million
tons a reduction of 35 million tons of pollution that will not be
achieved under current law\1\.
---------------------------------------------------------------------------
\1\Except where otherwise noted, the projected emission levels,
costs and benefits in this testimony are all based on analyses of the
Clear Skies Act of 2002 conducted in 2002. EPA is currently analyzing
the Clear Skies Act of 2003 using updated modeling assumptions and
other updated information. We expect that the new analyses will be very
similar to the 2002 analyses, but specific projections will likely
change somewhat.
---------------------------------------------------------------------------
When fully implemented, Clear Skies would prolong thousands of
lives each year, providing billions of dollars in economic benefits,
save millions of dollars in health care costs, and increase by millions
the number of people living in areas that meet our new, more stringent
health-based national air quality standards. Clear Skies would also
virtually eliminate chronic acidity in northeastern lakes, reduce
nitrogen loading in coastal waters, and help restore visibility in our
national parks.
The Clean Air Act has been, and continues to be, a vehicle for
great progress in improving the health and welfare of the American
people. The Clear Skies Act substantially expands one of the most
successful Clean Air Act programs the Acid Rain Program and reduces the
need to rely on complex and less efficient programs. The result would
be significant nationwide human health and environmental benefits;
certainty for industry, States and citizens; energy security; and
continuing low costs to consumers.
II. CLEAR SKIES PROVIDES SIGNIFICANT BENEFITS
The heart of Clear Skies is a proven cap-and-trade approach to
emissions reductions. Mandatory caps restrict total emissions and
decline over time. Clear Skies would continue the existing national
cap-and-trade program for SO<INF>2</INF>, but dramatically reduce the
cap from 9 million to 3 million tons. Clear Skies would also use a
national cap-and-trade program for mercury that would reduce emissions
from the current level of about 48 tons to a cap of 15 tons, and would
employ two regional cap-and-trade programs for NOx to reduce emissions
from current levels of 5 million tons to 1.7 million tons. The specific
caps and their timing are set forth in Table 1.
Table 1. Clear Skies Emission Reductions Timetable
----------------------------------------------------------------------------------------------------------------
Clear Skies Emissions Caps
Actual Emissions ---------------------------------------- Total Reduction at
in 2000 First Phase of Second Phase of Full
Reductions Reductions Implementation
----------------------------------------------------------------------------------------------------------------
SO2............................. 11.2 million tons. 4.5 million tons 3 million tons in 73%
in 2010\1\. 2018\1\.
NOx\2\.......................... 5.1 million tons.. 2.1 million tons 1.7 million tons 67%
in 2008\1\. in 2018\1\.
Mercury......................... 48 tons........... 26 tons in 2010... 15 tons in 2018\1\ 69%
----------------------------------------------------------------------------------------------------------------
\1\Because sources can reduce emissions early, earn allowances for those actions, and use those allowances
later, actual emission levels will be higher than the cap in the first years of these phases.
\2\The NOx cap is divided between two zones with separate trading programs under each zone. Zone 1 includes the
31 eastern states in the continental U.S. and eastern Texas. Zone 2 includes the remaining states
participating in the WRAP process as well as Nebraska, Kansas, Oklahoma, and some of Western Texas.
Although national in scope, Clear Skies recognizes and adjusts for
important regional differences in both the nature of air pollution and
the relative importance of emissions from power generation. The eastern
half of the country needs reductions in NOx emissions to help meet the
ozone and fine particle standards, which generally are not an issue in
the western half of the county (with the exception of California, which
does not have significant emissions from existing coal-fired power
plants). The western half of the country needs NOx reductions primarily
to reduce the regional haze that mars scenic vistas in our national
parks and wilderness areas, and the nitrogen deposition that harms
fragile forests. Recognizing these regional differences, Clear Skies
would establish two trading zones for NOx emissions and prohibit
trading between the zones to ensure that the critical health-driven
goals in the East are achieved.
Clear Skies also recognizes the special visibility protection
measures that have been developed by States participating in the
Western Regional Air Partnership (WRAP). Clear Skies would essentially
codify the WRAP's separate SO<INF>2</INF> backstop cap-and-trade
program, which would come into effect only if the WRAP States did not
meet their 2018 SO<INF>2</INF> emissions targets.
Finally, Clear Skies requires tough, technology-based new source
standards on all new power generation projects and maintains special
protections for national parks and wilderness areas when sources locate
within 50 km of ``Class I'' national parks and wilderness areas.
Significant Public Health and Environmental Benefits
The public health and environmental benefits of Clear Skies present
compelling reasons for its immediate passage. EPA projects that, by
2010, reductions in fine particle and ozone levels under Clear Skies
would result in billions of dollars in health and visibility benefits
nationwide each year, including as many as 6,400 prolonged lives. Using
an alternative methodology, 3,800 lives would be prolonged by 2010.
Under EPA's base methodology for calculating benefits, Americans would
experience significant benefits each year by 2020, including:
<bullet> 12,000 fewer premature deaths (7,000 under an alternative
analysis),
<bullet> 11,900 fewer visits to hospitals and emergency rooms for
cardiovascular and respiratory symptoms,
<bullet> 370,000 fewer days with asthma attacks, and
<bullet> 2 million fewer lost work days.
Using the alternative methodology, by 2020 Americans would
experience 7,000 fewer premature deaths each year.
Methodologies do not exist to quantify or monetize all the benefits
of Clear Skies. Still, it is clear that the benefits far exceed the
costs. EPA estimates that the health benefits we can quantify under
Clear Skies are worth $93 billion annually by 2020--substantially
greater than the annual costs of approximately $6.5 billion. An
alternative approach projects annual health benefits of $11 billion,
still significantly outweighing the costs. The Agency estimates an
additional $3 billion in benefits from improving visibility at select
National Parks and Wilderness Areas. These estimates do not include the
many additional benefits that cannot currently be monetized but are
likely to be significant, such as human health benefits from reduced
risk of mercury emissions, and ecological benefits from improvements in
the health of our forests, lakes, and coastal waters.
Clear Skies would achieve most of these benefits by dramatically
reducing fine particle pollution caused by SO<INF>2</INF> and NOx
emissions, which is a year-round problem. Of the many air pollutants
regulated by EPA, fine particle pollution is perhaps the greatest
threat to public health. Hundreds of studies in the peer reviewed
literature have found that these microscopic particles can reach the
deepest regions of the lungs. Exposure to fine particles is associated
with premature death, as well as asthma attacks, chronic bronchitis,
decreased lung function, and respiratory disease. Exposure is also
associated with aggravation of heart and lung disease, leading to
increased hospitalizations, emergency room and doctor visits, and use
of medication.
By reducing NOx emissions, Clear Skies also would reduce ozone
pollution in the eastern part of the country and help keep ozone levels
low in the western portion of the country. Ozone (smog) is a
significant health concern, particularly for children and people with
asthma and other respiratory diseases who are active outdoors in the
summertime. Ozone can exacerbate respiratory symptoms, such as coughing
and pain when breathing deeply, as well as transient reductions in lung
function and inflammation of the lung. Ozone has also been associated
with increased hospitalizations and emergency room visits for
respiratory causes. Repeated exposure over time may permanently damage
lung tissue.
Current estimates indicate that more than 350 counties fail to meet
the health-based fine particle and ozone standards. As a result, 45
percent of all Americans live in counties where monitored air was
unhealthy at times because of high levels of fine particles and
ozone.\2\ Clear Skies, in combination with existing control programs,
would dramatically reduce that number, as shown in Figure 1. In areas
where attainment is not projected, Clear Skies would assist those areas
in addressing the air quality problems. Even counties currently
measuring attainment would benefit from the reductions under Clear
Skies. Throughout the West, Clear Skies would hold emissions from power
plants in check, preserving clean air in high-growth areas and
preventing degradation of the environment, even as population and
electricity demand increase.
---------------------------------------------------------------------------
\2\These numbers are based on the most current monitoring data
available to EPA. It is more current than the data that was available
at the time that EPA conducted its analyses last year of the Clear
Skies Act of 2002. The newer data confirms that we have serious air
quality problems in many counties, but it shows improvement--fewer
counties violating the ozone and fine particle standards. As a result,
compared to last year's analyses, the new analyses may show less
residual non-attainment (counties out of attainment in 2010 and 2020).
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
Clear Skies would also reduce mercury emissions from power plants.
EPA is required to regulate mercury because EPA determined that mercury
emissions from power plants pose an otherwise unaddressed significant
risk to health and the environment, and because control options to
reduce this risk are available. Mercury, a potent toxin, can cause
permanent damage to the brain and nervous system, particularly in
developing fetuses when ingested in sufficient quantities. People are
exposed to mercury mainly through eating fish contaminated with
methylmercury.
Mercury is released into the environment from many sources. Mercury
emissions are a complex atmospheric pollutant transported over local,
regional, national, and global geographic scales. EPA estimates that 60
percent of the mercury falling on the U.S. is coming from current man-
made sources. Power generation remains the largest man-made source of
mercury emissions in the United States. In 1999, coal-fired power
plants emitted 48 tons of mercury (approximately 37 percent of man-made
total). These sources also contribute 1 percent of mercury to the
global pool.
Mercury that ends up in fish may originate as emissions to the air.
Mercury emissions are later converted into methylmercury by bacteria.
Methylmercury accumulates through the food chain: fish that eat other
fish can accumulate high levels of methylmercury. EPA has determined
that children born to women who may have been exposed to high levels
may be at some increased risk of potential adverse health effects.
Prenatal exposure to such levels of methylmercury may cause
developmental delays and cognitive impairment in children. Clear Skies
will require a 69 percent reduction of mercury emissions from power
plants.
In addition to substantial human health benefits, Clear Skies would
also deliver numerous environmental benefits. For example, under Clear
Skies, we project that 10 million fewer pounds of nitrogen would enter
the Chesapeake Bay annually by 2020, reducing potential for water
quality problems such as algae blooms and fish kills. In fact, the
Chesapeake Bay States, including NY, VA, MD, PA, DE, WV and DC,
recently agreed to incorporate the nitrogen reductions that would
result from Clear Skies legislation as part of their overall plan to
reduce nutrient loadings to the Bay. Clear Skies would also accelerate
the recovery process of acidic lakes, virtually eliminating chronic
acidity in many Northeastern lakes. For decades fish in the Adirondacks
have been decimated by acid rain, making many lakes completely
incapable of supporting populations of fish such as trout and
smallmouth bass. The Acid Rain Program has allowed some of these lakes
and the surrounding forests to begin to recover; Clear Skies would
achieve additional needed reductions. Clear Skies would also help other
ecosystems suffering from the effects of acid deposition by preventing
further deterioration of Southeastern streams. Finally, Clear Skies
would improve visibility across the country, particularly in our
treasured national parks and wilderness areas.
Clear Skies is designed to ensure that these public health and
environmental benefits are achieved and maintained. By relying on
mandatory caps, Clear Skies would ensure that total power plant
emissions of SO<INF>2</INF>, NOx and mercury would not increase over
time. This is a distinct advantage over traditional command-and-control
regulatory methods that establish source-specific emission rates but
which allow total emissions to increase over time. Like the Acid Rain
Program, Clear Skies would have much higher levels of accountability
and transparency than most other regulatory programs. Sources would be
required to continuously monitor and report all emissions, ensuring
accurate and complete emissions data. If power plants emit more than
allowed, financial penalties are automatically levied without the need
for an enforcement action. More importantly, every ton emitted over the
allowed amount would have to be offset in the following year, ensuring
no net environmental harm. This high level of environmental assurance
is rare in existing programs; Clear Skies would make it a hallmark of
the next generation of environmental protection.
Reasonable Costs and Energy Security for Consumers and Industry
The President directed us to design Clear Skies to meet both our
environmental and our energy goals. Under Clear Skies, electricity
prices are expected to remain at or below current levels over the next
decade. Our extensive economic modeling of the power industry looked at
a broad array of factors to gauge the effects of Clear Skies on the
energy industry and they all show that cleaner air and energy security
can go hand-in-hand.
Clear Skies would maintain energy diversity. With Clear Skies, coal
production for power generation would be able to grow by almost 10
percent from 2000 to 2020 while air emissions are significantly
reduced. EPA's extensive economic modeling for Clear Skies demonstrates
that the proposal's emission reductions would be achieved primarily
through retrofitting controls on existing plants. Clear Skies's
timeframe and certainty enable the power sector to meet aggressive
emission reduction targets without fuel switching. This is important
not only to power generators and their consumers who want to continue
to rely on our most abundant, reliable, affordable and domestically
secure source of energy, but also to other consumers and industries
whose livelihoods could be hurt by a rise in natural gas prices. Our
analysis shows that Clear Skies would not cause a significant increase
in natural gas prices.
Under Clear Skies by 2010, about three-fourths of U.S. coal-fired
generation is projected to come from units with billions of dollars of
investment in advanced SO<INF>2</INF> and/or NOx control equipment
(such as scrubbers and Selective Catalytic Reduction, which also
substantially reduce mercury emissions). In 2020, the percentage is
projected to rise to 85 percent. Cost effective strategies and
technologies for the control of sulfur dioxide and nitrogen oxides
emissions exist now, and thanks in good part to the Clear Skies market-
based system improved methods for these pollutants, and for mercury,
are expected to become increasingly cost-efficient over the next
several years. In fact, the Institute of Clean Air Companies forecasts
that the U.S. markets for most technology sectors will remain fairly
strong, adding momentum to the air pollution control technology
industry. We expect that the Clear Skies Act will provide great
benefits to American jobs in the engineering and construction
industries.
One of the key reasons Clear Skies would be cost-effective is its
reliance on cap-and-trade programs. Like the Acid Rain Program upon
which it is based, Clear Skies would give industry flexibility in how
to achieve the needed emission reductions, which allows industry to
make the most cost-effective reductions and pass those savings on to
consumers. Power plants would be allowed to choose the pollution
reduction strategy that best meets their needs (e.g., installing
pollution control equipment, switching to lower sulfur coals, buying
excess allowances from plants that have reduced their emissions beyond
required levels). Like the Acid Rain program, Clear Skies includes
banking provisions, enabling companies to save unused allowances for
future use. Banking creates a tangible, quantifiable, economic
incentive to decrease emissions beyond allowable levels, which EPA
projects will result in significant early benefits due to over-
compliance in the initial years, particularly for SO<INF>2</INF>. It
also leads to gradual emissions reductions over time, and therefore a
less disruptive transition to tighter emission controls needed to
address lingering problems. Based on past experience under the Acid
Rain Program, by placing a monetary value on avoided emissions, Clear
Skies would stimulate technological innovation, including efficiency
improvements in control technology, and encourage early reductions.
Assistance to State and Local Governments
Under the current Clean Air Act, State and local governments face
the daunting task of meeting the new fine particle and ozone standards.
Clear Skies would substantially reduce that burden. By making enormous
strides toward attainment of the fine particle and ozone standards,
Clear Skies would assist State and local governments in meeting their
obligation under the Clean Air Act to bring areas into attainment with
these health-based standards, and provide Americans with cleaner air.
Clear Skies' assistance to States goes beyond ensuring that power
plants will reduce their emissions. Clear Skies relies on a common-
sense principle if a local air quality problem will be solved in a
reasonable timeframe by the required regional reductions in power plant
emissions, we should not require local areas to adopt local measures.
Under Clear Skies, areas that are projected to meet the ozone and fine
particles standards by 2015 as a result of Clear Skies would have a
legal deadline of 2015 for meeting these standards (i.e., will have an
attainment date of 2015). These areas would be designated
``transitional'' areas, instead of ``nonattainment'' or ``attainment,''
and would not have to adopt local measures (except as necessary to
qualify for transitional status). They would have reduced air quality
planning obligations and would not have to administer more complex
programs, such as transportation conformity, nonattainment New Source
Review, or locally based progress or technology requirements in most
circumstances.
III. IMPROVING THE CLEAN AIR ACT WITH CLEAR SKIES
Clear Skies would improve the Clean Air Act in a number of ways. It
would build on the proven portions of the Clean Air Act like the
national ambient air quality standards and the Acid Rain Program and
reduce reliance on complex, less efficient requirements like New Source
Review for existing sources. The mandatory emissions caps at the heart
of Clear Skies guarantee that reductions will be achieved and
maintained over time. In contrast, uncertainties with respect to
regulatory development, litigation, and implementation time make it
difficult to estimate how quickly and effectively current regulations
would be implemented under the current Clean Air Act. The level of
SO<INF>2</INF> and NOx reductions we expect over the next decade with
Clear Skies legislation could not be achieved under the existing Act.
After that, we know that Clear Skies would achieve significant
reductions, while both the timing and level of reductions under the
current Clean Air Act are unclear.
Early Reductions
One of the major reasons we need Clear Skies now is that adoption
of Clear Skies would provide greater protection over the next decade
than the traditional regulatory path. The Clear Skies Act will result
in significant over-compliance in the early years, particularly for
SO<INF>2</INF>, because sources are allowed to bank excess emissions
reductions. For reasons described below, our analyses indicate that the
cumulative SO<INF>2</INF> and NOx emissions reductions achieved by
Clear Skies over the next decade would not be achieved in the same
timeframe under the current Clean Air Act. Last year's EPA estimates
project that power plants would emit 35 million fewer tons of NOx and
SO<INF>2</INF> over the next decade under Clear Skies than they would
under the current Clean Air Act this more than doubles the reductions
otherwise expected and would ensure significantly larger human health
and environmental benefits. Our analysis suggests that the amount of
pollution controls that the industry will have to install under Clear
Skies over the next decade will stretch the limits of available labor
and other construction resources, but can in fact be accomplished while
maintaining energy reliability and continuing the downward trend in
electricity prices.
Legislation Now Is Better than Regulation Followed by Years of
Litigation
Even if Clear Skies is not passed by Congress, power plants will be
required to reduce their emissions of SO<INF>2</INF>, NOx and mercury.
There is no more cost effective way than Clear Skies to meet the
requirements of the current Clean Air Act or to achieve our public
health and environmental goals. We know that, absent new legislation,
EPA and the States will need to take a number of regulatory actions,
although it is unclear now when the requirements will come into effect
or what their control levels will be.
Clear Skies has several benefits over the regulatory scheme that
will otherwise confront power generators. Clear Skies is designed to go
into effect immediately upon enactment. Power plants would immediately
understand their obligations to reduce pollution and would be rewarded
for early action. As a result, public health and environmental benefits
would begin immediately. Given Clear Skies' design, it is unlikely that
litigation could delay the program (particularly since Congress would
decide the two most controversial issues the magnitude and timing of
reductions). In contrast, under the current Clean Air Act, power plants
would not know what their obligations would be until after EPA and
States started and completed numerous rulemakings.
Past experience suggests that litigation delays on the regulatory
path are likely. Our experience with two cap-and-trade programs the
legislatively created Acid Rain Trading Program and the
administratively created NOx SIP Call illustrates the benefits of
achieving our public health and environmental goals with legislation
rather than relying solely on existing regulatory authority.
Though we project a great deal of benefits will arise from
implementation of the NOx SIP call, the journey has been difficult and
is not yet over. The NOx SIP call was designed to reduce ozone-forming
emissions by one million tons across the eastern United States. The
rulemaking was based on consultations begun in 1995 among States,
industry, EPA, and nongovernmental organizations. A Federal rule was
finalized in 1998. As a result of litigation, one State was dropped and
the 2003 compliance deadline was moved back for most States. Most
States are required to comply in 2004, although two States will have
until 2005 or later. Meanwhile, sources in these States continue to
contribute to Eastern smog problems. Although the courts have largely
upheld the NOx SIP Call, the litigation is not completely over.
Industry and State challenges to the rules have made planning for
pollution control installations difficult, raised costs to industry and
consumers, and delayed health and environmental benefits.
In contrast, reductions from the Acid Rain Program began soon after
it passed (even before EPA finalized implementing regulations). There
were few legal challenges to the small number of rules EPA had to issue
and none of the challenges delayed implementation of the program. The
results of the program have been dramatic and unprecedented. Compliance
has been nearly 100 percent. Reductions in power plant SO<INF>2</INF>
emissions were larger and earlier than required, providing earlier
human health and environmental benefits. Now, in the ninth year of the
program, we know that the greatest SO<INF>2</INF> emissions reductions
were achieved in the highest SO<INF>2</INF>-emitting States; acid
deposition dramatically decreased over large areas of the eastern
United States in the areas where they were most critically needed;
trading did not cause geographic shifting of emissions or increases in
localized pollution (hot spots); and the human health and environmental
benefits were delivered broadly. The compliance flexibility and
allowance trading has reduced compliance costs by 75 percent from
initial EPA estimates.
[See 2001 Acid Rain Program Progress Report submitted for the
record.]
It is clear from this example that existing regulatory tools often
take considerable time to achieve significant results, and can be
subject to additional years of litigation before significant emissions
reductions are achieved. Under this scenario, there are few incentives
to reduce emissions until rules are final and litigation is complete,
posing potentially significant delays in achieving human health and
environmental benefits.
The Clean Air Act contains several provisions under which EPA will
be required to impose further emission controls on power plants in
order to allow States to meet the new national ambient air quality
standards (NAAQS) for PM<INF>2.5</INF> and ozone. For example, Section
126 of the Clean Air Act provides a petition process that States can
use to force EPA to issue regulations to reduce emissions of
SO<INF>2</INF> and NOx from upwind sources, including power plants. A
number of States have indicated that they intend to submit Section 126
petitions in the near future. However, compared to Clear Skies, this
approach will almost certainly involve years of litigation and
uncertainty about reduction targets and timetables.
Additional reductions are required from power plants through the
regional haze rule's BART (Best Available Retrofit Technology)
requirements and forthcoming mercury MACT (maximum achievable control
technology) requirements. EPA is required to propose by the end of 2003
a MACT standard for utility mercury emissions that must be met, plant-
by-plant, by every coal-fired utility with unit capacity above 25
megawatts. EPA is required to finalize this rule by the end of 2004.
The Act generally gives sources 3 years within which to comply with
MACT standards. This compliance obligation could be delayed by a court
if EPA's rule is challenged.
Because these regulations will be the product of separate Federal,
State and judicial processes, comparable health and environmental
protection is likely to cost more under the current Clean Air Act than
under Clear Skies. EPA estimates that a comprehensive, integrated
approach relying on cap-and-trade programs could reduce costs by one
fourth as compared to the regulatory approach achieving comparable
emission reductions. These cost savings would be passed on to the
public through lower electricity prices and greater profitability to
investors and owners of electric generation.
New Source Review
Some have suggested that Clear Skies is an attempt to undermine the
Clean Air Act. This is simply not true. To achieve the next generation
of environmental progress, we must build on the successful provisions
in laws that have served us well and learn from those provisions that
have not served us well, or have had only limited success. New Source
Review (NSR) is an example of a program that EPA and stakeholders have
long recognized is not working well.
There is a misconception that the principle goal of the NSR program
is to reduce emissions from power plants. This is simply incorrect.
Reducing emissions from power plants is the principle goal of Clear
Skies. The NSR program is triggered only when facilities emitting large
amounts of air pollution are built, and when modifications at these
facilities result in significant increases in air pollution. The NSR
program is not designed to result in nationwide reductions of air
pollution from power plants. When it comes to reducing harmful air
emissions from power plants, Clear Skies would accomplish more than
NSR.
Clear Skies would significantly modify the NSR program for power
plants, but contain some important backstops. We expect that existing
power plants would not have to go through NSR for modifications. New
sources would no longer have to go through the entire NSR process, but
some aspects of the process would still apply. Although we believe that
with a tight cap on emissions, new sources will always install good
controls, we did not want to run the risk that a new source would be
uncontrolled. Therefore, as a backstop, Clear Skies would require all
new power plants to meet New Source Performance Standards that are set
in the statute.
In addition, new power generators locating within 50 km of a Class
I area (e.g., national parks or wilderness areas) would still be
subject to the current NSR requirements for the protection of those
areas. Finally, new power plants will also have to meet the current NSR
requirements that they will not cause or contribute to a violation of
the national ambient air quality standards.
IV. WINDOW OF OPPORTUNITY
Because of the lessons learned over the last decade, there is
increasing support for legislation such as Clear Skies that would
significantly reduce and cap power plant emissions and create a market-
based system to minimize control costs. From environmental groups to
coal companies, there is increasing broad-based support demonstrating
that multipollutant legislation is a preferable path to cleaner air.
Such an approach would address an array of air pollution concerns
associated with power generation--including fine particles, smog,
mercury deposition, acid rain, nitrogen deposition, and visibility
impairment--at lower cost and with more certainty than currently
allowed by the Clean Air Act.
The Acid Rain Program is widely accepted as one of the most
effective air pollution programs ever adopted and has consequently
attracted worldwide attention and emulation. The Program's track record
has encouraged Congress to consider broader applications of cap-and-
trade programs to address multiple air pollutants. The common elements
of the proposals considered by Congress are mandatory caps on emissions
of multiple pollutants from the power generation sector, implemented
through allowance trading programs modeled after the Acid Rain Program.
There is no better time for Congress to be considering
multipollutant legislation. President Bush has indicated that Clear
Skies is his top environmental priority. The number of proposals being
considered by Congress also indicates a consensus behind the basic idea
of a multipollutant cap-and-trade approach. The Large Public Power
Council, Edison Electric Institute, Adirondack Council, and numerous
individual utilities have all expressed support for the scope and
framework of Clear Skies. If legislation passes quickly, we will begin
achieving emissions reductions and related health benefits now.
Congress needs to act now so that we do not lose a decade's worth of
health and environmental benefits from reducing fine PM pollution,
smog, acid deposition, nitrogen deposition, and regional haze. Further,
as EPA continues to implement additional forthcoming regulations under
the existing framework of the Act, the likelihood of our ability to
pursue an integrated program diminishes and with it diminish the
numerous advantages that I have delineated today of an approach like
Clear Skies.
Legislation is also needed now to help States with their air
quality planning and provide incentives for industry innovation, which,
in turn, would lower costs and emissions. Such incentives are
particularly compelling this year as we approach the task of reducing
mercury emissions from the power industry. If designed correctly,
legislation could provide the incentive that spurs technological
innovation. When stringent yet flexible mechanisms exist, substantial
technological improvements and steady reductions in control costs can
be expected to follow.
Congress obviously has much to consider as it weighs Clear Skies
and other multipollutant proposals this year. We anticipate and welcome
a rigorous and healthy debate on these issues.
______
Responses of Hon. Christine Todd Whitman to Additional Questions from
Senator Jeffords
Question 1. In the last 4 years, has EPA performed any modeling or
possess information which suggests that lower levels of emissions of
SOx, NOx, and mercury, than would be achieved by implementation of the
Clear Skies legislation are feasible and could be achieved with less
than a $5 billion annual incremental cost beyond the cost of Clear
Skies? If so, please provide the Committee with the data, including
parsed model runs, and a summary of the data.
Response. During the development of the Clear Skies Act, the
Administration looked at a number of policy options, analyzing air
quality and economic impacts as well as the feasibility of installing
the pollution controls necessary to comply with the environmental
requirements. Last year, EPA provided to Congress model outputs, parsed
model runs and summary data for each of the multi-pollutant scenarios
that were analyzed for both air quality and economic impacts during the
development of Clear Skies. EPA also provided the model outputs, parsed
model runs and summary data for the economic and air quality analysis
of Clear Skies that was done last year.
One of these modeling runs used during the development of Clear
Skies is more stringent and has an incremental cost of less than $5
billion in annual costs. However, EPA's analysis of engineering, labor
and capital markets for the power sector indicates that the ability of
this sector to install the level of pollution controls required to meet
the first phase requirements of this developmental scenario would
significantly stretch the available labor resources beyond that which
is feasible. This analysis raises concerns over the feasibility of
requiring more pollution reduction than Clear Skies does in its first
phase and/or installing controls sooner than the bill does. Notably, a
program faced with a labor shortage would also be much more expensive,
a consideration modeled in the work we supplied Congress. Additionally,
we have found that the timing of the requirements in Clear Skies is an
important part of ensuring the pollution controls can be financed.
Enclosed are summary results of our engineering study and financial
analysis of Clear Skies for your further consideration (Attachments 1
and 2).
Question 2. Please provide the Committee with any analysis,
including parsed IPM runs and summaries, that the Agency has performed
regarding S. 3135, the Clean Air Planning Act of 2002. The requested
analysis does not need to represent the official Administration
position, the Committee would like to receive whatever analysis EPA has
performed using taxpayers dollars
Response. EPA analyzed S. 3135, the Clean Air Planning Act of 2002,
using the Integrated Planning Model (IPM) for sulfur dioxide
(SO<INF>2</INF>), nitrogen oxides (NOx) and mercury emissions. EPA
analyzed the CO<INF>2</INF> provisions in S. 3135 using an off-line
analysis that relied on the same methodology that EPA used in 2001 to
respond to a request from Senators Smith, Voinovich and Brownback to
analyze CO<INF>2</INF> components of various multi-emission power plant
policy options. We have provided the modeling outputs and off-line
spreadsheet analysis to your staff. EPA does not have parsed IPM runs
for S. 3135.
Question 3. If I understood Mr. Holmstead's testimony correctly, he
indicated that it is possible that there could be a 1.5 percent cost
differential or somewhat more than that for implementation of S. 485
versus S. 3135, Senator Carper's bill. Please explain how larger
emissions reductions, including carbon dioxide, could be accomplished
with so little difference in cost.
Mr. Holmstead did not testify about the cost differential between
S. 485 and S. 3135. However, EPA's analysis of S. 3135 projected annual
costs at about $5.6 billion and $9.0 billion in 2010 and 2020,
respectively. This is approximately 53 percent and 38 percent greater
than the cost of Clear Skies for those same years (based on 2002
analyses).
Question 4. Please provide and compare a list of the assumptions
used in the IPM models already run, or in the process of being run,
specifically on the Clear Skies legislative proposal for three
different periods: the period prior to introduction of S. 2815, the
period prior to introduction of S. 485, and the period following
introduction of S. 485.
Response. Extensive documentation regarding the Integrated Planning
Model (IPM), including every model assumption, can be found on EPA's
website (http://www.epa.gov/airmarkets/epa-ipm/index.html). For the
year prior to introduction of S. 2815 until July 2003, EPA used
modeling results from IPM V.2.1 to analyze the projected economic
impacts of that bill. A copy of the main documentation report for that
version of the model is enclosed (Attachment 3). Beginning in July
2003, EPA has used an updated version of the model in its analysis of
S. 485, the Clear Skies Act of 2003. The documentation of this latest
version of IPM (version 2.1.6) is also enclosed (Attachment 4). This
documentation explains all the changes in the current version of IPM
from the earlier version. A summary of all the changes can be found at
the beginning of the document. Since introduction of S. 2815, IPM has
undergone a routine update, and various IPM assumptions were revised.
This version of IPM (V.2.1.6) was used to model S. 485 and continues to
be used today. Documentation for the updated version of IPM can also be
found on the website.
Question 5. The Clean Air Act Amendments of 1990 created strict
attainment deadlines in Federal law because the States were having
difficulty in controlling regional pollution and achieving healthy air.
Why does the Clear Skies legislation propose to loosen and extend
attainment deadlines, since that would assure that more people will
live in areas with unhealthier air longer than required by the current
Act?
Response. If enacted, Clear Skies would deliver early human health
and environmental benefits almost immediately compared to the current
Clean Air Act. Asserting otherwise shows a fundamental misunderstanding
of how a cap and trade program works. The cap and trade program would
provide incentives to start reducing emissions immediately. EPA
projects that two-thirds of the counties currently out of attainment
with the fine particle standards would come into attainment by 2010 as
a result of Clear Skies, the proposed non-road heavy duty diesel rule,
and existing State and Federal control programs. Without Clear Skies,
only half of those counties are projected to attain in 2010 based on
existing control programs and the non-road diesel rule.
Areas that are projected to meet the ozone and PM 2.5 standards by
2015 as a result of Clear Skies and other programs would have a legal
deadline of 2015 for meeting these standards (i.e., will have an
attainment date of 2015). These areas would be designated
``transitional'' areas.
Question 6. Would Clear Skies require additional legislation in the
future to obtain greater reductions in mercury beyond the roughly 70
percent in 2018 (or later) mandated in the bill, even if good science
indicates more aggressive action is needed to protect public health?
Response. Clear Skies would require approximately a 70 percent
decrease in mercury emissions, as it does for SO<INF>2</INF> and NOx.
It is an expansion of the acid rain trading program, and, as in the
acid rain trading program, the Congress holds the sole power to adjust
the caps. Due to the scientific and technological uncertainties
regarding mercury, Section 410 of the Clear Skies Act would require a
comprehensive assessment of the Phase II cap for mercury, along with
those for SOx and NOx by 2009. This assessment is to include an
examination of the latest scientific and technical information related
to mercury effects, environmental chemistry, and control approaches.
Based on that assessment, the Administrator could submit any
recommendations to Congress to revise the Phase II caps.
Question 7. Please provide a table comparing the proposed national
emission standards for affected units in section 481 of S. 485 with the
emissions performance required by permit for each new or modified--
boiler or integrated gasification combine cycle plant, gas-fired
combustion turbine, and any combustion turbine that is not gas-fired or
coal-fired, for the last 5 years.
Response. The Clear Skies Act calls for significant reductions due
to the two-phased caps. Thus, we believe that the section 481 values
are redundant in the long run. The review of available limited permit
data demonstrates a range of values both below and above levels set in
section 481.
The EPA does not maintain a comprehensive record of the details of
permit information for new and modified sources. Information is
available on some, but not all, facilities receiving permits over the
past 5 years. A partial compilation for new source permits for new or
modified boilers, integrated gasification combine cycle plants, gas-
fired combustion turbines, and combustion turbines is contained in the
National Coal-Fired Utility Projects Spreadsheet. This compilation of
information, supplied by all 10 EPA Regions, about new utility projects
was updated in May 2003, and can be accessed at http://www.epa.gov/ttn/
catc/products.html#misc.
Question 8 What are the average emission rates for NOx and SOx for
new coal-fired power plants permitted over the last 5 years? What are
the averages for modifications at existing coal-fired power plants
permitted in the same period?
Response. In general the NSR program has been delegated to States,
therefore EPA does not track all permit applications for new or
modified coal plants. See question 7 for more details. Based on the
permit information available, new coal plants have been permitted at
NOx levels ranging from approximately 0.07 lbs/mmBtu to 0.15 lbs/mmBtu
and SO<INF>2</INF> levels ranging from approximately 0.13 lbs/mmBtu to
0.30 lbs/mmBtu. We do not have comparable information on permits for
modifications at existing power plants.
Question 9 Does EPA disagree with the Abt Associates peer-reviewed
study done a couple of years ago which estimates about 30,000 people
are dying prematurely every year right now from power plant pollution?
If so, why?
Response. EPA agrees that fine particle pollution contributes to
premature deaths as well as other serious health effects. That is why
this Administration is seeking the fastest method for achieving air
quality improvements over the next decade. EPA has not analyzed the
total number of premature deaths attributable each year to fine
particle pollution, or the total contribution of a particular sector to
health effects associated with air pollution. Instead of calculating
total premature deaths from fine particles, EPA'S analyses have focused
on quantifying the incremental benefits of adopting particular
regulatory strategies. In 1995, EPA projected the human health benefits
of Title IV of the Clean Air Act (the Acid Rain Program). That analysis
suggested that, by 2010, the Title IV program alone would prevent
approximately 10,000 premature deaths each year. While the Acid Rain
program has been very successful in reducing harmful emissions from
utilities, Clear Skies will provide even further health protection. We
have estimated that Clear Skies reductions by 2020 could prolong as
many as 14,100 lives annually (while an alternative approach would set
this figure at 8,400 lives prolonged annually.)
Question 10. In a recent EPA briefing on Clear Skies for Senate
staff, an Agency presenter admitted that mercury reductions would be
greater in 2008 under the mercury MACT rule than under Clear Skies.
Please explain how Clear Skies mercury controls would not lead to an
increased health risk to newborns and pregnant women, compared to
completely carrying out the mercury MACT standards.
Response. Thank you for the opportunity to clarify this much-
discussed issue. The utility MACT rulemaking process and the underlying
analyses are not yet completed, and therefore we cannot state
definitively whether the ultimate mercury emission reductions under
MACT would be greater or less than those that would be achieved under
Clear Skies.
After the proposed rule is published in December, 2003, the Agency
will assess the public comments submitted before publishing the final
rule in December, 2004. The statute requires compliance 3 years
following promulgation (i.e., December, 2007), although States have the
ability to delay the requirement for a year (i.e., until December,
2008). While the statutory timing for the implementation of the utility
MACT is prior to the Clear Skies' Phase I cap date, it is almost
certain that the utility MACT will be litigated. Therefore, the timing
is highly uncertain.
In contrast, under Clear Skies we believe that mercury emission
reductions will begin as soon as Clear Skies is enacted because the
cap-and-trade system provides firms certainty in their business
planning and an incentive to bank allowances in the early years of the
program. What's more, since Clear Skies is a multi-pollutant approach
to emissions reductions, some mercury reductions will be achieved as a
co-benefit from the installation of SO<INF>2</INF> and NOx controls.
Clear Skies will therefore likely result in earlier emissions
reductions than the MACT rule, reducing the health risk to newborns and
expectant mothers sooner than MACT.
Question 11. Does Clear Skies eliminate the residual risk
provisions of Section 112 with respect to mercury and electric
utilities? Also, would these statutory provisions be eliminated or
deferred for other hazardous air pollutants under the Clear Skies
legislation? Please justify.
Response. Under the Clear Skies Act of 2003 (CSA), the
Administrator would conduct a comprehensive assessment of the Phase II
caps pursuant to section 410 (Evaluation of Limitations) and then
recommend to Congress whether changes to the Phase II caps are
appropriate. This evaluation and possible recommendation and the
required reduction in mercury emissions make the provisions of section
112(f) of the Clean Air Act as they apply to mercury from electric
utility generating units unnecessary. However, the section 112(f)
provisions for hazardous air pollutants other than mercury, would
remain in effect under the Clear Skies Act of 2003.
Clear Skies logically modifies the deadlines for addressing
residual risk from non-mercury hazardous air pollutants from the power
sector to run from the start of the allowance requirement of section
472 rather than within 8 years of issuance of a MACT standard under the
current provisions of the Clean Air Act. This modification will allow
EPA to have sufficient emissions and exposure data after SO<INF>2</INF>
and NOx allowance compliance strategies are in place to make the
necessary determination of the need for a residual risk standard for
these non-mercury hazardous air pollutants.
Question 12. Please explain how Clear Skies will achieve greater
reductions in 2018 in mercury emissions than would be achieved by MACT
requirements in the present law.
Response. EPA entered a settlement agreement to propose the Utility
MACT in December, 2003, after which the Agency will consider public
comments submitted on the proposal and issue a final rule in December,
2004. Until the entire rulemaking process is complete, it is not
possible to determine whether the CSA would obtain mercury reductions
greater than or less than the Utility MACT. We can be fairly certain,
however, that Clear Skies will achieve reductions sooner than would be
achieved under MACT. Due to Clear Skies' incentives for early
reductions, reductions would start occurring as soon as the legislation
passed. With MACT, the final rule won't be issued for another 15
months, and then with litigation uncertainties, it is impossible to
know when emissions reductions might begin.
Question 13. As I understand it, the National Park Service, Federal
land managers, and EPA have documented that air pollution degrading
visibility and causing acid deposition in the National Parks and
Wildlife Refuges is coming from power plants many miles away, sometimes
more than 50 or 100 miles away. For example, dozens of power plants
impact the Smoky Mountains National Park, but only one falls within the
31 mile/50 kilometer perimeter of the park. That's the limit contained
in the Clear Skies proposal for use as a test to determine whether
better control technology is required. Would Clear Skies allow new
power plants to be sited or old ones reconstructed in places that could
degrade visibility or cause increased deposition in the National Parks?
Response. Clear Skies would require individual new facilities to
have, at a minimum, modern pollution controls as specified in section
481 (National Emission Standards for Affected Units) of the Clear Skies
Act. Subsequent review by the Federal Land Manger of facilities within
the 50km limit would ensure that the potential impacts of well
controlled new sources do not result in significant local effects in
Class I areas.
Clear Skies would benefit the ecosystems and air quality in
national parks across the country, especially in the eastern States.
The reductions in acid rain, eutrophication, mercury deposition and
regional haze from Clear Skies would improve these treasured resources.
By addressing air pollution from a regional perspective, the transport
of air pollution into national parks and wilderness areas would be
reduced.
An examination of our emissions projections for the Class I area in
your question--the Great Smoky Mountain National Park (GSMNP)--serves
to illustrate the strength of the Clear Skies approach to these issues.
Using air quality modeling approaches in our 2003 analysis, we
forecasted emissions with and without Clear Skies for the GSMNP air
shed, which stretches over several hundred kilometers in the eastern
US. There are substantial overall reductions in SO<INF>2</INF> and NOx
emissions affecting this air shed as compared to the base case that EPA
modeled (which assumes continued implementation of existing control
programs, but no new Federal or State regulatory control programs).
Under the base Case, EPA projects that emissions of SO<INF>2</INF> in
the Southern Blue Ridge Airsheds that encompass the GSMNP will be
approximately 5 million tons in 2020. Clear Skies will drop these acid
rain-causing pollutants to less than 2 million tons in 2020.
NOx emissions will also drop dramatically under Clear Skies. We
project that Clear Skies will reduce emissions of NOx in these airsheds
from approximately 1 million tons in the 2020 base case down to
approximately 200,000 tons in 2020. We believe that Clear Skies will
result in approximately $600 million of benefits in the Great Smokies
in 2010 and $2 billion of benefits in the Great Smokies in 2020. And,
this figure does not include the many benefits for which we cannot
assign a monetary value. These projected improvements include all
forecasted growth in new sources. Clear Skies would provide the
regional reductions necessary to improve visibility and ecosystem
protection of our National Parks and Wilderness areas.
Question 14. What measurable effects will Clear Skies have on
episodically acidic lakes and streams in the U.S.?
Response. When analyzing the effects of Clear Skies on lakes and
streams, EPA focused on the Northeast and the Southeast the areas of
the country with most acid-sensitive aquatic ecosystems. The results of
our 2003 analysis are presented below.
From this analysis, we found a small improvement in reducing the
percentage of southeastern streams that are episodically acidic. This
is primarily due to the long period of time that Southeastern soils
hold decades of acid loadings that continue to be released, even as
loadings are reduced. Thus, in the Southeast, Clear Skies would slow
the deterioration of stream health expected under the Base Case and
would prevent additional streams from becoming chronically acidic. In
the Northeast, there is an initial appearance of a perverse effect of
more lakes characterized as episodically acidic, but actually most of
these lakes have shifted from the more serious chronically acidic
category to episodically acidic. In fact, Clear Skies is projected to
eliminate chronic acidity in Adirondack region lakes, whereas more than
1 in 10 is chronically acidic in the Base Case in 2020.
Question 15. How will conformity work in the transitional areas
proposed to be created in Clear Skies?
Response. Under the Clear Skies Act, transportation conformity
(dealing with highways and mass transit) and general conformity
(dealing with all other Federal actions) would not apply to areas
designated as transitional for a specific pollutant (for example, ozone
or particulate matter), since these areas would not be designated as
nonattainment for that pollutant. Conformity requirements would apply
only in nonattainment and maintenance areas. If an area is designated
transitional for one pollutant and nonattainment for another pollutant,
then conformity would apply for the nonattainment pollutant but not for
the transitional pollutant. This approach is based on the common-sense
principle that we should not require local areas to adopt local
measures if their air quality problem will be solved in a reasonable
timeframe by the reductions in power plant emissions required by Clear
Skies.
Question 16. If the pending NSR enforcement actions against power
plants were all decided in EPA's favor, the targeted facilities would
make significant reductions of SOx and NOx. Under the models run for
Clear Skies, how much would each of these targeted plants probably
reduce annual emissions compared to the reductions they would make if
the NSR enforcement actions were decided in EPA's favor?
Response. Because many of the enforcement actions are on-going, EPA
is unable to estimate the emission reductions that would be obtained at
all of the plants currently subject to enforcement action. Furthermore,
the enforcement actions that have been settled have resulted in a range
of reductions and timing, making the outcome of future cases difficult
to project. Aggregate emissions from the power sector under Clear Skies
would be reduced by 70 percent beyond today's emission levels. Under
Clear Skies, total emissions are capped at this 70 percent reduction
level indefinitely. NSR enforcement does not provide you with that
guarantee because even if you have the most stringent standard at every
plant, if the number of plants keeps growing, the amount of emissions
can grow as well.
Question 17. What would be the approximate emissions performance
for NOx and SOx for each of the power plants covered by the Agency's
NSR enforcement actions if all the cases were decided in EPA's favor?
Response. See answer to Question 16.
Question 18. If all power plants defined as ``affected units''
under Clear Skies were required to apply BACT for the relevant
technology and fuel source today, what would be the total NOx and SOx
emissions from those sources?
Response. EPA has not performed this analysis of emission
reductions. But command and control regulations (such as BACT) have
consistently been shown to be far more costly at achieving a given
emission reduction target than a cap and trade approach (such as Clear
Skies).
Question 19. Administration witnesses have testified, and the
Agency's 90-day report on NSR, indicate that the application of NSR to
new sources works well and effectively. Why is it necessary in Clear
Skies to eliminate it or replace it with something else?
Response. Given the tight caps and the backstop of technology
standards for new power plants, we believe that the significant
governmental and industry resources involved in the NSR program would
no longer be needed for power plants if Clear Skies were to pass. The
Clear Skies legislation provides clear advantages over the NSR program.
The caps in Clear Skies guarantee emissions are capped indefinitely;
under NSR total emissions can still increase. The market-based
mechanisms in Clear Skies allow firms the most flexibility to reduce
emissions at the lowest cost possible. The program has inherent
incentives for firms to begin reducing emissions early. The
administrative burden of Clear Skies is much lower than that of NSR.
Clear Skies provides the regulatory certainty that plant managers need
when planning for the future. The tight caps in Clear Skies would
provide an increasing economic incentive for new sources, as well as
existing sources, to install good pollution controls.
The caps would also provide economic incentives to drive
technological innovations. To ensure that new power plants put on good
controls in the early years of the program, Clear Skies also sets
technology-based standards that new sources would be required to meet.
Clear Skies also maintains protections for Class I areas from power
plants locating within 50 km of their boundaries. States are still
required to ensure that constructions of new sources are consistent
with plans for attaining the applicable National Ambient Air Quality
Standards. Protection for other local concerns can still be addressed
by State programs because Clear Skies does not preempt State authority
to impose more stringent controls.
Question 20. According to current EPA material, in 2010, Clear
Skies would bring 34 counties into attainment for the fine particle
standard and 10 counties into attainment for the ozone standard.
According to EPA, the existing schedule under the Clean Air Act will
require areas to achieve attainment by 2009. Based on EPA modeling, how
many counties will not be in attainment in 2010 for either the
PM<INF>2.5</INF> or the ozone NAAQS primarily because of power plant
emissions and how many people will be living in them?
Response. Our most recent analysis projected that, in 2010, Clear
Skies would bring an additional 42 counties into attainment for the
fine particle standard and an additional 3 counties into attainment for
the 8-hour ozone standard beyond the number projected under the Base
Case (i.e., existing control programs plus the proposed non-road diesel
rule). Absent additional State or Federal regulation, 124 counties
nationwide (with a population of 77.1 million people) would have
monitoring data showing that they were not attaining one or both of
these standards in 2010. This widespread non-attainment cannot wholly
be attributed to any single source category, but it is likely that the
power generation and mobile sectors play a dominant role in most
locations.
Our current model results do not allow us to quantify the
contribution of power plant emissions to nonattainment. But given that
power plants are responsible for about two-thirds of the emissions
inventory for SO<INF>2</INF> and about one-fifth for NOx, and that
large portions of nonattainment are due to regional transport, it is
clear that power generation plays a significant role in projected
nonattainment throughout the eastern 35 States and DC. For this part of
the country, absent additional State or Federal regulation, 109
counties (with a population of 53.9 million people) would have
monitoring data showing that they were not in attainment with one or
both of these standards.
Question 21. Since Clear Skies eliminates the final MACT standard
for mercury, what provisions in the Administration proposal will ensure
that toxic hot spots do not result from using a cap-and-trade system
for mercury emissions?
Response. Clear Skies would reduce nationwide mercury emissions by
70 percent from current levels. As occurred under the Acid Rain
Program, and as the Clear Skies modeling indicates, under a cap-and-
trade system the largest emission reductions tend to take place in the
areas with the largest emissions. Therefore, sources with the most
mercury emissions are expected to reduce emissions the most. The
Administration proposal is not expected to create areas of increased
mercury deposition. Additionally, if a State decides that local
conditions warrant, it can impose more stringent controls.
Question 22. If the Administration is certain that Clear Skies will
be helpful in achieving attainment on schedule, then why is it
necessary in that legislation to delete (or diminish) State authorities
such as section 126 that are intended to assure attainment?
Response. We believe that the first phase reductions in NOx, SOx
and Hg in Clear Skies would push the power generation sector about as
far and fast as is technically and economically feasible. The
cumulative reductions from Clear Skies would be greater over the next
decade than would be likely under current CAA authorities, including
section 126.
Question 23. EPA's estimates say that in 20 years Clear Skies would
leave the Smokies with more than 2.5 times the amount of nitrogen
deposition than would allow recovery of the ecosystem. When would
recovery of the Smokies ecosystem occur under Clear Skies?
Response. EPA's 2003 analysis shows that in 20 years, Clear Skies
will reduce nitrogen deposition in the Smokies region between five and
20 percent. The Agency believes this would help the area's acid-
sensitive streams and nitrogen-sensitive forests recover. However, we
are technically unable to model the environmental benefits of this
reduction in nitrogen deposition at this time.
Question 24. Does the public and do companies' shareholders have a
right to know about air emissions that may cause long-term damage like
greenhouse gases?
Response. The Agency takes seriously its role to provide quality
data to the public and the scientific community. Greenhouse gas (GHG)
information is provided in several of EPA outreach initiatives,
reports, and on-line sources. For the power sector specifically, in
EPA's annual Emission Scorecard we publish plant-level emissions data
for SO<INF>2</INF>, NOx and CO<INF>2</INF> from the Acid Rain Program
reported to us as required under section 821 of the Clean Air Act
Amendments. Another EPA product, E-Grid, provides a data base of plant-
level emissions that is designed to be highly user-friendly
(www.epa.gov/cleanenergy/egrid). Finally, the US GHG Emission and Sinks
Report, published every April, is another source of information on
aggregate GHG emissions for those seeking information on emissions data
for economic sectors of interest. Copies of EPA's latest Emissions
Scorecard and GHG Emissions and Sinks Report are enclosed (Attachments
5 and 6).
Other agencies are also working to make sure that greenhouse gas
emissions information is readily available to the public. The
Department of Energy has maintained a voluntary registry for emissions
reductions since 1997. In 2001, 228 participants in 25 different
industries or services reported 1,705 projects to the registry. The DOE
is currently working with a large interagency team, of which EPA is an
active participant to improve this registry, per President's Bush's
February 2002 directive. The Energy Information Administration's annual
US inventory of GHG emissions (published as required by section 1605(a)
of the Energy Policy Act of 1992) is available at http://
www.eia.doe.gov/oiaf/1605/ggrpt/index.html
Question 25. Under Clear Skies legislation if enacted, would States
be able to retain their existing NSR programs for application to
electric power plants? If so, would a State be eligible for SIP credits
if the application of that States NSR program resulted in more
stringent requirements for power plants than are required under Clear
Skies?
Response. Yes, States would have the option of retaining their
existing NSR programs as they apply to electric power plants. Nothing
in the Clear Skies legislation would preempt existing State authority
in this regard. Moreover, there is nothing in Clear Skies that would
prohibit a State from receiving proper credit in its ozone or other
attainment demonstration for any State Implementation Plan requirements
beyond Clear Skies.
Question 26. Your testimony says that the new transitional areas
allowed under Clear Skies would have a legal deadline of 2015 to meet
the national air quality standards. But, the legislation says that EPA
will review their attainment status by the middle of 2016, and if
they're in nonattainment, then sometime in the next 4 years the area
must submit a revised SIP. So it appears an area could easily get an
extra four or 5 years until 2021 before they have to adopt actual
controls. Do the current laws attainment deadlines have to be extended
6 to 10 years because the caps in Clear Skies are too weak and too
late?
Response. Clear Skies creates a transitional designation for those
areas that, based on modeling done after Clear Skies, are projected to
come into attainment with the power plant reductions from Clear Skies
and other Federal measures. In addition, if Clear Skies is projected to
improve an areas air quality, but not enough to bring it into
attainment, those areas can be designated transitional if, by the end
of 2004, the State submits and EPA approves additional local measures
and a demonstration that those local measures will bring the area into
attainment by 2015. If an area does not meet the criteria for
transitional classification, then the attainment date will be governed
by the existing Clean Air Act.
The only areas that would be eligible for a 2015 attainment date
are those that have a combination of Federal and local measures that
are projected to bring them into attainment. Although the legal
deadline for attaining the ozone and PM2.5 NAAQS would be 2015 for
these transitional areas, as a practical matter, we expect many of
these areas to attain prior to 2015.
The provisions specifying what happens if an area does not attain
by 2015 have been created as a backstop in case actual circumstances
and monitoring do not match the modeling projections. These provisions
are similar to the current provision of the Act contained in section
179(d) of the Clean Air Act, which requires a State with an area that
does not attain the standard by the legal deadline to submit another
State Implementation Plan to EPA within 1 year.
Question 27. According to your testimony, when Clear Skies is fully
implemented, 85 percent of the coal-generated power will be from
facilities that will have advanced pollution control technology in both
the east and west. Please identify those facilities that will not have
advanced pollution control technology and the approximate share of the
total emissions inventory for each pollutant that they will as a group
represent.
Response. The facilities that IPM projects to install advanced
pollution control technology can be identified using the IPM parsed
output files available on our website (http://www.epa.gov/airmarkets/
epa-ipm/results2003.html). This website includes an explanation of the
various types of pollution controls that sources may install in the
model to meet the caps under Clear Skies, with additional details are
provided in the documentation (refer to QJ4). Notably, facilities that
have ``advanced pollution control technology'' for SO<INF>2</INF>, NOx
and/or mercury are using scrubbers, SCRs and activated carbon
injection, respectively. Virtually all coal-fired units control
particulates through highly effective electrostatic precipitators or
baghouses. If these units do not also have the above advanced controls,
they are called ``uncontrolled'' for SO<INF>2</INF>, NOx and mercury.
After the implementation of the Clear Skies Act, the uncontrolled coal-
fired plants are projected to emit just under 1.7 million tons of
SO<INF>2</INF> (out of 4.26 million tons for all coal sources), 640
thousand tons of NOx (out of 1.5 million tons for all coal sources),
and 7.2 tons of mercury (out of 22.2 tons for all coal sources). It is
important to note that IPM best predicts the types of units making
changes and is not able to accurately predict every unit's future
situation, even though the parsed runs show individual units that do
not install these advanced controls. Results generally show that
smaller, old, less efficient units that are less likely to have
advanced controls.
Question 28. When Clear Skies is fully implemented, will any coal-
fired power plant operate without pollution controls?
Response. Under the Clear Skies Act of 2003, by 2020, about 80
percent of coal-fired capacity will come from plants with advanced
pollution controls (scrubbers, SCR and/or activated carbon injection).
We expect more controls to be installed after 2020, but believe that
the extent of additional controls is subject to a great deal of
uncertainty. As noted previously, almost all power plants operate with
technology to control particles. However, as with other multi-pollutant
policy options using a cap-and-trade, market approach (as well as under
the current Clean Air Act acid rain provisions), some coal-fired
sources would operate without ``advanced pollution controls'' as we
have defined them (See QJ27), where lower cost emissions reductions are
available from other facilities and emission allowances are purchased
to meet compliance needs. Clear Skies modeling, which takes into
account that some sources may operate without advanced pollution
controls, still shows substantial benefits from Clear Skies
implementation throughout the country and widespread advanced pollution
controls in place.
Question 29. What are the current emissions characteristics of the
coal gasification combined cycle power plants in the U.S., and at any
of those abroad for which EPA has data?
Response. There are two coal gasification combined cycle (IGCC)
units in the country. One is Tampa Electric Company's Polk Power
Station Unit #1 IGCC Power Plant, a 250 MW unit that is located near
Tampa, FL. The other is PSI Energy's Wabash River Generating Station
Unit #1, a 262 MW plant in West Terre Haute, IN.
Using data in EPA's Emissions Scorecard 2001 (which includes
emissions data for power plants in the Acid Rain Program--see
www.epa.gov/airmarkets/emissions/score01/index.html), the following
emissions data is provided for year 2001:
Polk unit: SO<INF>2</INF> emissions 0.15 lbs/mmBtu
NOx emissions 0.10 lbs/mmBtu
Wabash River unit: SO<INF>2</INF> emissions 0.14 lbs/mmBtu
NOx emissions 0.17 lbs/mmBtu
Mercury emissions estimates for these plants in 1999 (based on 1999
EPA Mercury ICR data):
Polk unit: 61.9 lbs/yr
Wabash: 133.6lbs/yr
EPA does not have data for overseas coal gasification plants.
Question 30. The NOx SIP Call starts reductions in May 2004. Why
does the Clear Skies NOx cap start in 2008, rather than 2010, as the
caps do for SOx and mercury?
Response. Sources are largely expected to meet the Phase I NOx
requirements of Clear Skies by expanding their utilization of existing
control equipment (equipment that has been, or will be, installed in
response to regional NOx reduction programs such as the NOx SIP call )
from the 5 month ozone season to year round. In contrast, EPA analysis
projects that it would be necessary for sources to install additional
control technology to meet the SO<INF>2</INF> and Hg caps of Clear
Skies. As a result, it is possible to begin the NOx reductions of Clear
Skies earlier, because the potential for straining the capital, labor,
and equipment markets for control equipment construction is lower than
it would be for SO<INF>2</INF> and Hg emissions. In addition, the NOx
reductions of Clear Skies are needed earlier than those of
SO<INF>2</INF> and Hg in order to meet the ozone attainment deadlines,
which occur earlier than those for particulate matter.
It is important to note that Clear Skies provides incentives for
early reductions, so it is likely that plants will begin reducing
emissions soon after the passage of the legislation. In contrast,
compliance with the NOx SIP call was prolonged by a lengthy rulemaking
process and lawsuits postponing implementation until 6 years after the
rule was finalized.
Question 31. In EPA'S written testimony, it says that the
legislation will still require new power plants to meet the current NSR
requirements that they will not cause or contribute to a violation of
the NAAQS. However, the legislation actually says that the source must
demonstrate that the emissions increase from the unit will not cause,
or contribute to, air pollution in excess of any NAAQS. That's a
different standard. Why is it necessary to change the existing test in
law?
Response. EPA did not intend to suggest in its written testimony
that the Clear Skies legislation would result in a change to the
existing test for determining whether a new source would cause or
contribute to a violation of the NAAQS. EPA does not believe that this
language in the Clear Skies Act would be interpreted in our
implementation, or by a court, as setting a different standard than do
the current NSR requirements.
Question 32. Are there any electric generating units in the US that
have never installed pollution control equipment through the New Source
Review process? If so, please identify those facilities.
Response. Yes, there are electric generating units in the US that
have never installed pollution control equipment through the New Source
Review (NSR) program. EPA does not have a comprehensive listing of
which power plants have installed control equipment as a result of this
programs. Because there are multiple programs that may apply to a
particular plant--with New Source Review (NSR) requirements applying
only to new (or certain modified) sources--we are unable to attribute a
particular installation of a control technology to any one program.
While some power plants control their emissions using advanced
SO<INF>2</INF> or NOx pollution control equipment (i.e., end-of-the-
stack equipment), many do not. Some plants have not been subject to a
regulatory program that requires the installation of specific
technology or sets a performance standard. Others have been subject to
a program, like the Acid Rain Program, which allows flexibility in
choosing the most cost effective compliance strategy (e.g. add-on
controls, fuel switching, efficiency improvements). Of those plants
that operate with advanced pollution control devices, many installed
that equipment for reasons other than NSR requirements. Unit level
information on NOx and SO<INF>2</INF> controls for Acid Rain units can
be found in Appendix B at: www.epa.gov/airmarkets/emissions/score01/
index.html
Question 33. Under current law, areas will need to attain for the
fine particulate matter standard by 2009, or they could, under certain
limited circumstances get an extension to 2014. According to a scenario
in the 1997 impact assessment to accompany the PM<INF>2.5</INF> NAAQS,
getting close to attainment using power plant reductions would require
60 percent reduction in SOx emission from those sources. In what year
would Clear Skies likely reach a 60 percent reduction in SOx emissions
from power plants?
Response. In the 1997 assessment which accompanied the revision of
the PM NAAQS, the analysis provided a broad implementation scenario for
the purpose of projecting both the costs and benefits of alternative
NAAQS levels. In this analysis, EPA assumed that implementation of the
new fine particle NAAQS would lead to an initial reduction of SOx
emissions from the electric power industry by lowering the SOx
emissions caps under the Title IV trading and banking program in order
to reduce the formation of sulfate particles. In one scenario, the
Agency assumed that power plant SOx emissions would be reduced by 60
percent to 3.58 million tons. Under Clear Skies, power plants emissions
are capped at a lower level of 3 million tons in 2018. Due to the
ability to bank early reductions under Clear Skies, this emissions cap
is projected to be achieved after the 2020 time period, but this is
only because emissions would be lower than the permissible cap level in
the early years of the program.
Just to clarify, if all areas are designated non-attainment by the
end of 2004, areas will have an attainment date no later than 2009,
with possible extensions to 2014. In certain circumstances, areas can
be given two additional 1-year extensions to meet the standard.
Question 34. What is the impact on the zone 2 States of the
addition of Kansas and Oklahoma? Please justify the inclusion of these
States in zone 2. What is the impact of the change on non-attainment in
areas east of these two States?
Response. By placing Kansas and Oklahoma under the Zone 2 NOx
emissions cap, the effective NOx emission rate will change slightly
from 0.24 lbs/mmBtu to 0.21 lbs/mmBtu in 2020. Different control levels
are appropriate in the eastern and western sections of the country
because each faces different types of environmental problems. NOx
reductions in the East are needed to address ozone and fine particulate
matter nonattainment issues, as well as acid rain and eutrophication of
water bodies. NOx reductions in the West are primarily aimed at
improving visibility in national parks and ensuring that the West
continues to meet ozone and fine particulate matter standards. (The
exception is California which has some counties currently in non-
attainment.) Kansas and Oklahoma were grouped with the western States
because they are not believed to be significant contributors to
nonattainment in eastern States.
Question 35. Please submit the cost-benefit analysis that EPA has
performed on a proposal that has been described to the Committee: a 2
million ton cap on sulfur dioxide emissions by 2013. Please describe in
detail the costs and benefits of this target and timetable, and include
a comparison of costs and benefits of this alternative with the costs
and benefits of the SOx target and timetable included in the Clear
Skies Act.
Response. Over the last 2 years, EPA has focused on analysis of
strategies to reduce SO<INF>2</INF>, NOx, and mercury emissions and not
strategies addressing a single pollutant, especially in the more
detailed analyses that have been done. Cost-benefit analyses of multi-
pollutant approaches limiting emissions from power plants require
specification of the cap levels and deadlines for all pollutants.
Although during the development of the Clear Skies Initiative EPA
performed a preliminary analysis of a multi-pollutant scenario in which
the SO<INF>2</INF> cap of 2.25 million tons in 2010 was specified
(along with caps for NOx and mercury) for use in internal
Administration discussions, we have not performed an analysis of a
stand-alone 2 million ton SO<INF>2</INF> cap. As explained in QJ1,
however, there were several feasibility concerns raised by seeking such
stringent reductions in the first phase of a multipollutant program.
Question 36. Under Clear Skies, it seems possible that the new so-
called transitional areas allowed in the proposed legislation would
have until 2020 before they would need to have a SIP adopted and
implemented. That's well after the 2009 or 2010 attainment date that
the Act requires following designation. Under S. 485, what's the latest
possible date at which a transitional area would be absolutely required
to have a SIP adopted demonstrating attainment?
Response. SIPs are meant to contain those State control measures
that are necessary to bring an area into attainment based on
projections of future air quality and economic activity. If EPA
modeling projects that transitional areas come into attainment with
Federal control measures and State control measures that are already
adopted, then there is no need to have additional State control
measures to bring the area into attainment, and thus nothing new is
required for an approvable SIP.
Under Clear Skies, if an area that is forecast to attain the
standard does not do so by the end of 2015, it then would be required
to be designated as nonattainment and to submit a SIP demonstrating
attainment no later than June 2020. The process for these areas is
similar to that under the existing CAA section 179(d) provision for
areas that fail to attain the standard by their attainment dates.
For additional information on transitional areas, please see the
answer to Question 26.
Question 37. Is it accurate to say that low-income families and the
elderly, who generally have less access to health care, suffer
disproportionate harm from ambient air pollution? If so, what does the
Agency's estimate is the aggregate and per capita quantified harm
experienced by this population from ambient air pollution?
Response. Certain groups may be more susceptible to harm from
ambient air pollution. Older people are especially vulnerable to air
pollution because (1) the immune system weakens with age, (2) chronic
conditions (e.g., chronic bronchitis or heart attacks) may be more
likely to develop in those who have experienced a lifetime of elevated
exposure, and (3) older people are more likely to have pre-existing
heart and lung conditions that may be exacerbated by elevated short-
term exposures to fine particles and ozone.
To the extent that individuals with lower incomes experience
higher rates of some cardiovascular and respiratory diseases than other
groups, they may experience more adverse effects, as exposure to air
pollution can exacerbate these existing conditions.
EPA has not analyzed the per capita number of premature deaths or
other health impacts attributable each year to ambient air pollution
for the entire population or for certain subpopulations. Rather, EPA
has focused on quantifying the benefits of adopting particular
regulatory strategies. This gives us an indication of the potential
magnitude of the benefits that could be achieved by reducing air
pollution under a given regulatory strategy. For example, EPA's
analysis of the benefits of the 2003 Clear Skies Act projects
substantial benefits for older Americans. By 2020, Clear Skies would
prevent 14,100 premature deaths each year. (An alternative methodology
for calculating health benefits projects approximately 8,400 premature
deaths prevented each year). In addition, EPA projected that each year,
by 2020, Americans would also experience approximately 30,000 fewer
visits to hospitals and emergency rooms, 23,000 fewer non-fatal heart
attacks, and 8,800 fewer cases of chronic bronchitis. Many of these
benefits would accrue to older Americans.
EPA has not apportioned the benefits of Clear Skies or other
regulatory strategies to people of different income classifications. We
do not have an example of the magnitude of benefits that could be
achieved by reducing air pollution for low-income families.
Question 38. Please compare the reductions in total tons of sulfur
dioxides and nitrogen oxides emissions required by the Clean Air Act
Amendments of 1990 from 1990 to 2010 and those required under the Clear
Skies legislation from 2004 to 2024.
The CAA amendments of 1990 achieved considerable reductions from
the power sector. EPA's data and analysis suggests that SO<INF>2</INF>
emissions will have gone from 15.7 million tons in 1990 to roughly 9.7
million tons in 2010, achieving a reduction of 38 percent. Some of the
SO<INF>2</INF> reductions are attributable to various State rules. For
NOx, emissions will have gone from 6.7 million tons in 1990 to 3.9
million tons in 2010 (42 percent reduction). NOx reductions are
attributable to the amendments of 1990, the NOx SIP call, the OTC
trading program, and various State rules.
With Clear Skies, reductions of SO<INF>2</INF> and NOx for the
first 2 decades after enactment would be even greater than those
projected to be achieved from 1990 through 2010. From 2000 to 2020, EPA
projects that, with Clear Skies, SO<INF>2</INF> emissions would
decrease by 62 percent (from 11.2 to 4.2 million tons) and NOx
emissions would decrease by 66 percent (from 5.1 to 1.7 million tons).
In addition, mercury emissions would decrease by 54 percent (from 48 to
22 tons). Ultimately, Clear Skies will reduce annual emissions of these
three pollutants by an average of 70 percent. It is difficult to
calculate the reductions in total tons of SO<INF>2</INF> and NOx
because of the difficulty in determining what emissions would have been
in the absence of Title IV and what they will be in under the Clean Air
Act in the absence of Clear Skies.
Question 39. In testimony, Mr. Holmstead said that the Agency
thinks that under Clear Skies there will be less fuel-switching, from
coal to natural gas, than under the current Clean Air Act. How much
fuel switching does the Administration project will occur between now
and 2020 if there are no statutory changes in the Clean Air Act?
Response. Past EPA analysis indicates that industry makes different
compliance strategy decisions when all emission reduction requirements
are known up front, as with Clear Skies. This contrasts to situations
when the requirements are identified over time and compliance with some
is required before all are specified, as under the current Act. EPA
performed an analysis of a hypothetical ``business-as-usual'' case that
was similar to the Straw Proposal EPA was evaluating in Fall 2001 in
order to show this comparison. This past analysis indicated that fuel
switching is a more likely compliance option when industry learns the
specifics of requirements over time rather than up-front, even when
control requirements are similar. Uncertainties created by litigation
even further complicate the second scenario.
Thus, compared to Clear Skies, EPA's full implementation of the
current CAA will likely result in considerably greater disruption to
industry including additional fuel switching and a more substantive
impact on gas consumption and prices--due to the less efficient,
piecemeal approach to these regulations (e.g., MACT, NSR, BART, and
other efforts to achieve the NAAQS). However, EPA cannot predict how
much fuel switching would occur under the current Act because that
would depend on the specific requirements the industry will face, which
are dependent upon numerous State and Federal rulemakings that have not
yet been completed and are not possible to reliably predict (the above
mentioned analysis was meant to be illustrative of the drawbacks of
sequential rulemaking and never intended to represent how EPA and
States would implement the existing Clean Air Act).
Question 40. Please describe how, if at all, Clear Skies provides a
market incentive for owners or operators of fossil-fuel power plants
to--1) increase their efficiency (MmBtu input per MWh output), 2)
invest in the development and siting of coal gasification combined
cycle plants in the next 20 years.
Response. The cap-and-trade approach of Clear Skies inherently
encourages fuel efficiency, including investment in new generation
technologies that are more efficient than their predecessors. A plant
that can create a marketable product, such as electricity, steam, or
hydrogen, using less fuel, will produce less pollution for a given
quantity of product. As a result this efficient plant will have to
retire less (or purchase fewer) emission allowances a valuable
commodity for a given amount of product. Clear Skies makes it more
expensive to emit NOx, SO<INF>2</INF>, and Hg, thereby making more
efficient plants, such as IGCCs, more economically competitive.
Question 41. Do you believe that the current statutory language or
the consent decree regarding the MACT requirements for hazardous air
pollutants could result in a rule that controls mercury only at the co-
benefits level--in the 40-50 percent range per unit?
Response. The current statutory language regarding mercury
emissions from coal-fired electric utility units defines existing
source MACT to be``. . . the average emission limitation achieved by
the best performing 12 percent of the existing sources (for which the
Administrator has emissions information) . . .'' There is no language
in the settlement agreement that would change this statutory direction.
At the current time, any appropriate subcategorization scheme and the
assessment of the individual floors for the MACT proposal have not been
completed. Moreover, after the utility MACT rule is proposed in
December, 2003, EPA will evaluate public comments submitted in response
to the proposal before finalizing the rule in December, 2004. Thus, it
is premature to speculate whether the Utility MACT standard would
impose controls more or less stringent than achieved as a co-benefit
provided by imposing reductions of other pollutants.
Question 42. Please explain how the alternative methodology for
presenting quantified benefits of Clear Skies (i.e. $11 billion in
2020) complies with the Agency's data quality guidelines under the Data
Quality Act.
Response. The purpose of the alternative methodology was to explore
how sensitive EPA's main analytic conclusions (that the benefits
outweigh the costs) were to changes in scientific and economic
assumptions in the estimate of the Clear Skies approach. This type of
sensitivity analysis is fundamental to sound and comprehensive analysis
of major environmental issues. Notably, we have found that even with
these alternative assumptions for key variables, the benefits outweigh
the costs. EPA's report on its analysis of the Clear Skies approach
summarized the foundation for this alternative estimate. EPA's data
quality guidelines were still being developed at the time the Clear
Skies analysis was completed, but conducting this type of sensitivity
analysis would not have been inconsistent with the objectives of those
guidelines for rigorous analysis.
Question 43. When does the Agency plan to deliver to the
participants of the utility MACT FACA/work group the modeling and
economic analysis that was promised to them for delivery on April 11,
2003?
Response. The Utility MACT Working Group was a Federal advisory
committee organized for approximately 1 year as a working group under
the Clean Air Act Advisory Committee (CAAAC). The Working Group
finished its work when it delivered its final report to the CAAAC on
October 30, 2002. The meetings and report were very informative and
helpful to the rulemaking process. The agency is committed to do all
the necessary analysis in order to propose a rule in accordance with
our obligations under the Clean Air Act and Administrative Procedure
Act. All of this analysis will be available to the public.
______
Responses of Hon. Christine Todd Whitman to Additional Questions from
Senator Voinovich
Question 1. Much has been said by critics that Clear Skies is not
as environmentally protective as future Clean Air Act requirements
would be--that it in fact would ``roll back the Clean Air Act.'' It
seems to me that one of the major advantages to Clear Skies is that it
provides both regulatory and environmental certainty--that is, the fact
that significant emission reductions are locked in according to
statutory deadlines in 2008, 2010 and 2018 that cannot be circumvented
or delayed the way that most requirements are now. How would you
respond to those critics?
Response. Clear Skies would provide dramatic environmental benefits
by reducing emissions from the power sector more than any control
program any other Administration has ever proposed. It does so while
allowing the downward trend in energy prices to continue and while
promoting energy independence.
It is correct that one of the most important benefits of Clear
Skies is that it would provide both regulatory and environmental
certainty. Clear Skies builds on the successes of the Clean Air Act and
would significantly improve air quality across the Nation by requiring
power plants to reduce their emissions of SO<INF>2</INF>, NOx and
mercury by 70 percent. The mandatory emissions caps at the heart of
Clear Skies are a sure thing and guarantee that reductions will be
maintained over time. Because cap-and-trade programs include economic
incentives for early action, Clear Skies would begin improving public
health immediately. Through the end of this decade, the Clear Skies Act
would clearly reduce power plant emissions more than would the current
Act. Clear Skies also allows firms to make the reductions in the most
cost-effective means possible. We do not have confidence in what would
occur under the current Act after this decade, so we are unable to make
a definitive statement about how reductions under the current Act would
compare to reductions under Clear Skies in the out years. We do know,
however, that the statutory caps in Clear Skies would provide certainty
of reductions that could not be delayed by litigation. Without Clear
Skies, we also know that, under the current Act, EPA and States will
need to develop and issue regulations to reduce power plant emissions,
but the levels and timing of these regulations are unknown. The
uncertainties regarding regulatory development, litigation,
implementation time, etc. under the current Act compare unfavorably
with the certainty provided to this sector by Clear Skies.
Question 2. The threat of fuel switching--utilities switching from
coal based generation to natural gas based generation--is a major
concern that must be addressed. What effect will Clear Skies have on
this problem--will it cause more utilities to fuel switch?
Response. The emissions reductions in the Clear Skies proposal
would be achieved through the installation of emissions controls,
rather than fuel switching. Under Clear Skies, 68 percent of U.S. coal-
fired generation is projected to come from units with advanced
SO<INF>2</INF> and/or NOx control equipment (such as scrubbers and SCR,
which also substantially reduce mercury emissions) by 2010. In 2020,
the percentage is projected to rise to 81 percent. In addition, the
regulatory certainty provided by Clear Skies would likely result in
fewer sources using repowering as a compliance strategy in the face of
the complex requirements of the existing CAA.
We believe that fuel switching is more likely under the current
Clean Air Act than under Clear Skies. Past EPA analyses have indicated
that industry makes different decisions about how to make specified
emission reductions when it knows all of the requirements up front
(which would happen with Clear Skies) as compared to a situation where
it learns about the requirements over time and has to start meeting
some requirements without knowing specifics of future additional
requirements (which would happen under the current Act). These past
analyses have indicated that fuel switching is a more likely compliance
option when industry learns the specifics of requirements over time
rather than at once even when the control requirements are similar.
Thus, we believe that, compared to Clear Skies, EPA's full
implementation of the current CAA will likely result in considerably
greater disruption to industry including additional fuel switching and
a more substantive impact on gas consumption and prices--due to the
less efficient, piecemeal approach to these regulations and litigation
uncertainty (e.g., MACT, NSR, BART, and other efforts to achieve the
NAAQS). EPA cannot predict how much fuel switching would occur under
the current Act because that would depend on the specific requirements
the industry will face, and those depend on numerous State and Federal
rulemakings that have not yet been completed.
Question 3. How will the Clear Skies Act affect electricity prices
and natural gas prices?
Response. EPA analysis projects that Clear Skies would not
significantly impact electricity prices or gas prices. Forecasted
trends would continue with or without Clear Skies. Clear Skies gives
industry the certainty and flexibility it needs to make the most cost-
effective investment decisions for reducing pollution. Costs are
sometimes passed on to electricity ratepayers in the form of higher
electricity prices, and modeling projects prices to be 2 percent higher
in 2020 with Clear Skies compared to the base case. Also, Clear Skies
ensures that coal-fired generation remains one of the cheapest methods
for generating electricity, and does not have a major impact on natural
gas supplies. Natural gas prices are projected to be less than 2.5
percent higher in 2020 with Clear Skies compared to the base case.
Question 4. Critics of Clear Skies have claimed that it would be
possible to have greater emission reductions in a faster timetable
during Phase I of Clear Skies. As evidence of this claim, these critics
have pointed to a straw proposal that I understand was a staff proposal
that leaked out of EPA during Administration consideration of the Clear
Skies Initiative. How would you respond to those critics?
Response. The Administration discussed a number of policy options
in the process of developing the Clear Skies proposal, including a
straw proposal that EPA management presented as a way of initiating the
inter-agency discussions necessary to develop an Administration
position. EPA no longer believes that the straw proposal is feasible.
In large part, this is because EPA's analysis of engineering, labor and
capital markets for the power sector indicates that their ability to
install the level of pollution controls required to meet the Phase I
requirements of Clear Skies would significantly stretch the available
labor resources. The Administration proposed different emissions caps
and timing in Phase I of Clear Skies out of consideration for the
engineering and construction markets ability to respond to the added
demand for the installation and operation of emission control
equipment.
Question 5. If our goal is to reduce harmful emissions from power
plants--should we be focusing our attention on NSR or on Clear Skies?
Response. There is no doubt that we should be focusing on Clear
Skies if our goal is to bring cleaner air to Americans as quickly and
cost-effectively as possible. Clear Skies would bring vast improvements
in air quality due to its substantial reductions in power plants
emissions. Clear Skies sets forth a mandatory program that would
dramatically reduce and permanently limit power plant emissions.
The dramatic emission reductions required by Clear Skies--70
percent reductions in SO<INF>2</INF>, NOx and mercury--will drive new
power plants and virtually all large existing power plants to install
good controls. Our modeling projects that 80 percent of the coal-fired
generation in 2020 would come from units with advanced SO<INF>2</INF>
and/or NOx controls.
In contrast, New Source Review (NSR) does not require emission
decreases--it prohibits emission increases and will be largely
redundant when Clear Skies is fully implemented. The NSR program is not
designed to result in nationwide reductions of air pollution from power
plants. NSR is triggered only when facilities emitting large amounts of
air pollution are built, or when modifications at large facilities
result in significant increases in air pollution. In fact, NSR cannot
be expected to decrease significantly nationwide emissions because
facility operators will avoid the type of project that makes the
facility subject to the program. In addition, given the nationwide cap
on power plant SO<INF>2</INF> emissions, compliance with NSR should not
reduce national SO<INF>2</INF> emissions.
______
Responses of Hon. Christine Todd Whitman to Additional Questions from
Senator Thomas
Question 1. As you know the mercury characteristics of coal burned
in western power plants is very different than coal in other regions.
How does the Phase 1 mercury cap, which will supposedly be achieved
through co-benefits, take into consideration these regional
distinctions in coal chemistry?
Response. Different types of coal may achieve different mercury
reductions from units with PM, SO<INF>2</INF> and NOx controls
installed. Recent test data indicates that the installation of NOx and
SO<INF>2</INF> controls on plants burning bituminous coals resulted in
greater mercury reduction on average than plants burning subbituminous
coals or lignite coals. Likewise, the test data indicated that
installation of NOx and SO<INF>2</INF> controls on plants burning
subbituminous coals resulted in somewhat greater mercury removal than
plants burning lignite coals. On average, units burning lignite coal
showed the least mercury removal of the three coal types. However,
there is limited data on mercury removal from lignite coal.
In an effort to recognize the difference in mercury control among
coal types, Clear Skies attempted to help equalize the cost of reducing
mercury emissions across coal types--and the easiest way to do this was
to adjust the allocation scheme. The adjustment factors of 1 for
bituminous, 1.25 for sub-bituminous, and 3 for lignite coals reflect
this variation in coal types. We believe the adjustment factors we used
are directionally correct based on the test data currently available.
EPA and others are currently collecting more information, and expect
that this information will inform the debate on allocations further. We
look forward to further discussion on this and other subjects.
Question 2. The Administration has incorporated the western
SO<INF>2</INF> program adopted by the Western Regional Air Partnership
(WRAP) into Clear Skies. Given that the WRAP program does not call for
significant SO<INF>2</INF> reductions until the 2013-2018 timeframe,
what co-benefits are being used to calculate the 2010 mercury cap in
the west? Specifically, from where does the Agency specifically see
those reductions being realized?
Response. Western sources would be required to meet NOx and
SO<INF>2</INF> reductions under Phase I of Clear Skies. Clear Skies was
designed to allow much of the first phase mercury reductions to be
achieved through installation of NOx and SO<INF>2</INF> controls
(selective catalytic reduction (SCR) and scrubbers, respectively)
because such controls also remove mercury.
Under EPA's updated 2003 modeling results, much of the Phase I
mercury reductions needed to meet the 26 ton cap would be achieved
through the installation of such controls. A small portion of the Phase
I reductions would likely need to be achieved through mercury-specific
control technologies (e.g., activated carbon injection). With the
mercury cap, we would expect the power industry to optimize their NOx
and SO<INF>2</INF> controls for the greatest mercury removal. Because
Clear Skies uses a cap-and-trade approach to reducing emissions,
sources have an incentive to install controls that achieve reductions
of both mercury and one or both of the other pollutants, to engineer
these controls for greater mercury removal and to operate the plants
that achieve the greatest mercury co-benefit removal a little more than
they might without a mercury cap. Further, Clear Skies contains a
safety valve price in order to protect against unexpected volatility in
the mercury market.
Question 3. As it affects the Western U.S., help the Committee walk
through the calculations of the Phase 1 mercury cap that is supposed to
be achieved through co-benefits. The Phase 1 national cap of 26 tons
represents a 46 percent reduction. If western mercury emissions of 4.3
tons were reduced by that amount it would result in a western cap of
2.0 tons. However, if all of the available sources in the west were
scrubbed at an unrealistic level of 100 percent, the remaining western
emissions would be 3.61 tons, much above the Phase I cap. Thus western
sources would have no choice but to buy allowances in the market in
order to comply. How, does this represent a realistic view of co-
benefits?
Response. We are uncertain how some of the numbers contained in the
question were derived. We would be happy to have EPA staff explore this
issue with Senator Thomas' staff .
__________
Statement of Hon. Glenn McCullough, Jr., Chairman, Tennessee Valley
Authority
Thank you, Mr. Chairman and members of the Subcommittee. On behalf
of the TVA Board of Directors and our employees, I would like to thank
you for the opportunity to appear today to discuss the Tennessee Valley
Authority's views on clean air and more specifically S. 485, the Clear
Skies Act of 2003. In our role as both steward of the environment and
provider of electricity in the Tennessee Valley, TVA is uniquely
positioned to comment on clean air issues facing our region and the
Nation, and we appreciate the opportunity to share these views today.
TVA, and 158 power distributors, serves the 8.3 million people of
the Tennessee Valley by producing affordable, reliable electricity
while supporting sustainable economic development and maintaining
stewardship of the region's natural resources. TVA's unique mission
gives us the opportunity to see first hand the importance of finding
the best balance between fueling a sustainable and vibrant economy and
enhancing the quality of our natural environment. The TVA Board works
every day to find that balance as it relates to many issues, and no
aspect of that balance is of greater importance than the issue you are
considering today--clean air.
TVA was created by Congress in 1933 to enhance the quality of life
in the Tennessee Valley region. We do that by providing flood control
and maintaining navigation on the Tennessee River, the nation's fifth
largest river system, and by generating and transmitting electricity in
the seven-State area that is the Tennessee Valley. TVA meets the power
needs of the region's homes, businesses, schools, and industries
through 158 power distributors and by directly serving 62 large
industries. TVA's electric power system includes 59 coal-fired units at
11 plant sites, three nuclear plants, 29 hydro-power plants, six
combustion-turbine plants, three wind turbines, and 15 solar
installations. The President's National Energy Policy recognizes the
importance of diversity in energy supply including new emphasis on
promoting nuclear energy, clean coal technologies, and renewable energy
sources. TVA's mix of fossil, nuclear, hydroelectric and renewable
generation not only helps ensure the reliability of the TVA system but
also illustrates the value and benefits of such diversity for our
Nation.
TVA is committed to its stewardship of the environment in the
Tennessee Valley. I am proud to say that TVA has reduced sulfur dioxide
(SO<INF>2</INF>) emissions by 76 percent since 1977. In addition, we
have reduced ozone-season emissions of nitrogen oxide (NOx) by 50
percent in the past 8 years. Through 2001 TVA has invested more than $3
billion to achieve these reductions even as the population, the economy
and the energy needs of the Valley continue to grow at rates faster
than the national average.
Since 1990, the population in the Tennessee Valley has grown by
more than 15 percent, gross regional product by nearly 50 percent, and
demand for electricity by more than 10 percent. In the past decade TVA
has achieved historically high levels of operational performance and
reliability in our power system and maintained affordable power rates--
all while reducing emissions of sulfur dioxide and nitrogen oxide from
our power plants. These actions demonstrate TVA's commitment to air
quality and to finding the right balance between fueling the region's
economy and continuing air quality improvements.
Today, TVA is in the midst of one of the most aggressive emissions
reduction programs in the Nation. In November 2002, TVA approved plans
to construct five more flue-gas desulfurization systems, or scrubbers,
to reduce sulfur-dioxide at coal-fired power plants in Kentucky,
Alabama, and Tennessee. These scrubbers will cost about $1.5 billion
and collectively will reduce emissions of sulfur dioxide by an
additional 200,000 tons per year. When construction is complete, we
will have installed FGD scrubbers on more than half of our coal-fired
generating capacity. This action, in combination with switching to low
sulfur coal, will reduce TVA's total sulfur dioxide emissions by 85
percent since 1977 (see attachment GRAPH 1).
In addition to sulfur dioxide controls, we are investing more than
$1.1 billion to reduce nitrogen oxide emissions by constructing
controls such as selective-catalytic-reduction systems or SCRs on 25
coal-fired generating units. By 2005, TVA will have installed SCRs or
similar technologies on more than 60 percent of its coal-fired
generating capacity. These SCRs, in combination with low NOx burners
and other controls, will reduce nitrogen oxide emissions by 75 percent
during the ozone season (see attachment GRAPH 2). Between now and the
end of this decade, we are committed to spending almost $1 million per
day to accomplish these emission reductions. By 2010, TVA will have
invested nearly $5.6 billion in cleaner air.
We believe this investment to reduce emissions from our coal-fired
plants will pay significant dividends while providing a cost-effective
return on that investment to continue air quality improvements in our
region. We also know, however, that emissions from all sources--
stationary and mobile--must continue to be reduced. For that reason I
am pleased today to appear before this subcommittee to endorse the
Clear Skies Act of 2003.
The current Clean Air Act has done much to reduce emissions and as
a result the air quality we enjoy in this country has been improved
significantly. However, the current Act is plagued with problems that
could threaten the reliability and affordability of the nation's
electric power supply. Low-cost, reliable electric power results, in
part, from the power industry's ability to use a variety of energy
sources, including coal. Today, the Tennessee Valley region depends on
coal for approximately 60 percent of its power supply. Coal is also our
nation's most abundant energy source for the future. Unfortunately,
this critical energy resource faces a complicated web of overlapping,
duplicative, and unnecessarily costly emission control requirements
that do not provide the greatest return on investment and, furthermore,
create enormous uncertainty for future investment. For example, there
are now more than a dozen separate regulations for sulfur dioxide and
nitrogen oxides alone and more regulations are just around the corner.
At times, disputes over these regulations have significantly delayed
the very air quality progress they were designed to achieve, thereby
creating enormous uncertainty for future investment.
TVA believes this piecemeal approach to regulating power plant
emissions should be replaced with a set of emission reduction targets
and timetables for sulfur dioxide, nitrogen oxides, and mercury. We
believe that Clear Skies, a well-designed multi-emission approach, will
continue the national trend of better air quality and provide
additional benefits. These benefits include a streamlined regulatory
process; sustained diversity in the nation's fuel supply; and more
flexible, market-based mechanisms for achieving emissions reductions
that are fair for both private and public power providers. This
approach would also reduce compliance costs; and give the utility
industry the certainty it needs to effectively plan and finance
emission reductions without unduly burdening ratepayers. Such results
have been well demonstrated by the very successful Acid Rain Program
and they can and should be replicated elsewhere in the Act. Clear Skies
appropriately allows continued use of SO<INF>2</INF> and NOx allowances
that are guaranteed under existing programs. This is an important
feature of the bill and should be preserved because companies will be
encouraged to reduce emissions early and achieve greater levels of
environmental benefit.
We do not believe, however, that Clear Skies or other market-based
programs should replace all features of the Clean Air Act that regulate
electric utility emissions. The National Ambient Air Quality Standards
have been a vital part of the improvement in national air quality and
they should be preserved as is done in Clear Skies.
While TVA endorses the Clear Skies Act's reduction targets and
timetables, we believe there are some provisions of the current bill
that can be improved to achieve better overall results. Specifically,
we urge you to ensure that the interim 2010 mercury target reflect the
Administration's intent of reducing mercury to levels achievable via a
cap and trade system through co-benefits with sulfur dioxide and
nitrogen oxide control technologies. This would allow TVA and other
utilities that have already reduced mercury through investments in
sulfur dioxide and nitrogen oxide reductions to realize credit for
their early actions. Otherwise, some may be required to install very
expensive and as yet unproven mercury-specific controls, such as carbon
injection and finishing baghouses.
Before I close, I want to emphasize that Clear Skies is a very
aggressive proposal. As I mentioned earlier, TVA knows from first hand
experience that extensive resources--time, equipment and skilled
workers--will be necessary to make the reductions Clear Skies will
require. Many of the critics of Clear Skies have never planned,
designed, constructed, operated or financed these massive pollution
control systems.
At TVA, we will soon have SCR or similar systems on 25 units and
scrubbers on 18 units raising TVA's total investment in cleaner air to
$5.6 billion. Achieving the results contemplated by Clear Skies would
require us to construct 23 additional SCR systems and install scrubber
technology on 40 more units at an additional cost of $4 billion between
now and 2018. To do more, sooner than what Clear Skies requires would
increase costs considerably while placing an unrealistic burden on the
economy of the Tennessee Valley and our ratepayers.
I appreciate the opportunity to talk with you today about this
important legislation. We at TVA are committed to improving the quality
of life for the 8.3 million people of the Tennessee Valley. The TVA
Board is setting a new standard of excellence for TVA's business
performance and in our public service. On our watch at TVA, we are
striving to find the best balance between providing the affordable,
reliable supply of electricity that sustains a vibrant economy and
continuing to improve the environmental quality of the Valley. Thank
you again for allowing me to address these issues with you today and I
am pleased to answer any questions you may have for me.
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
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__________
______
Responses of Glenn McCullough to Additional Questions from Senator
Voinovich
Question 1. Do you think that Clear Skies will have a positive
effect or negative effect on the air quality in the Great Smoky
Mountains National Park?
Response. The emission reductions required by the Clear Skies Act
will have a positive effect on the air quality and resources of the
Smokies. In my testimony, the emission reductions targets and
timetables in Clear Skies were noted as being very aggressive. The
reduction targets will result in deep cuts in emissions of nitrogen
oxides (NOx) and sulfur dioxide (SO2) from utilities, and the timetable
for these reductions is both short and certain. Unlike many
requirements of the existing Clean Air Act that are prone to prolonged
litigation, Clear Skies provides a logical and tested framework for
achieving these reductions rapidly.
In my testimony, I also noted that TVA has already reduced its NOx
emissions by over 50 percent since 1995 and has made a 76 percent
reduction in SO2 since 1977. TVA's reductions undoubtedly have
contributed to the improvements in air quality here in the Tennessee
Valley. Yet air quality challenges remain, particularly in the Park.
Clearly all air emission sources will have to reduce their emissions if
we are to see overall improvements to the Park's air quality. With its
national focus, Clear Skies should prove more effective in improving
mountain air quality than any regional or single-source programs.
Question 2. As I mentioned in my opening remarks, fuel switching is
a major concern of mine. I noticed in your testimony that you have a
pretty diverse fuel mix for electric generation at TVA. What impacts do
you think Clear Skies would have on your ability to maintain that
diverse fuel mix?
Response. Clear Skies will enable us to maintain a diverse mix of
generation assets and fuel sources. Make no mistake; Clear Skies will
require a continuation of major investments in pollution control
technologies for our coal-fired plants. Yet, with these investments,
TVA will be able to continue to provide affordable, reliable electrical
power that is needed to support sustainable economic development while
advancing TVA's stewardship of the region's natural resources.
Question 3. What impact would passage of the Clean Power Act (S.
366) have on TVA's ability to provide reliable affordable electricity
to its consumers?
Response. Our review of the Clean Power Act indicates that the
nation's infrastructure for generating and delivering energy in our
region would be severely compromised. Sharp reductions of CO2 by 2007
would require a drastic shift from coal-fired generation to natural-
gas-fired and nuclear generation. The enormity of this shift in fuel
sources stretches the ability to realistically predict the consequences
of such a change. Estimates from both DOE and EPA are shocking. Apart
from a large increase in the cost of power, extensive reliance on
natural gas as a primary fuel for electricity generation throughout the
Nation would undoubtedly result in serious reliability and availability
problems. It could also have devastating impacts on the use of natural
gas for residential uses.
We have estimated that this legislation could require TVA to shut
down over 3900 MW of our coal-fired generation, or more than 25 percent
of the coal-fired generation on our system.
______
Responses of Glenn McCullough to Additional Questions from Senator
Jeffords
Question 1. What impact would passage of the Clean Air Planning Act
(S. 3135) have on TVA's ability to provide reliable affordable
electricity to its consumers?
Reponse. Our review of the Clean Air Planning Act prompted, in
part, a statement in my testimony that to do more sooner than what
Clear Skies requires would increase costs considerably while placing an
unrealistic burden on the economy of the Tennessee Valley and our
ratepayers.
Question 2. What amount of reductions will Clear Skies require TVA
to make in 2010 and in 2020 that aren't already planned or expected by
TVA planners and management under the current Clean Air Act? In your
response, please include any planning documents that discuss possible
reductions required to be made in order to achieve attainment with the
ozone or fine particulate matter NAAQS.
Reponse. As I testified, TVA currently is in the process of
installing selective catalytic reduction (SCR) NOx controls on 25 of
TVA's 59 units and 5 more scrubbers to control SO2 emissions from 12 of
our units. We are installing these controls to meet requirements of the
current Clean Air Act. Under Clear Skies, we project that we will have
to install 23 additional SCRs on our system and scrubbers to control
emissions from 40 more units. Some of these latter controls could be
required when EPA issues additional regulations, but the number and
schedule for additional control systems depends on the requirements of
any future regulations and the resolution of the litigation that
inevitably follows EPA rulemakings under the current Clean Air Act.
Question 3. In your testimony, you stated that if Clear Skies were
implemented, TVA would have to install pollution controls on 23
additional units at a cost of another $5 billion by 2018. How much
would TVA electricity consumers rates rise as a result of Clear Skies
implementation?
Reponse. I stated that TVA will soon have SCR or similar systems on
25 units and scrubbers on 18 units raising TVA's total investment in
clean air to $5.6 billion. Achieving the results contemplated by Clear
Skies would require us to construct
23 additional SCR systems and install scrubber technology on 40
more units at an additional cost of $4 billion between now and 2018.
Spending an additional $4 billion between now and 2018 would impose
a significant financial burden on TVA. TVA's goal has always been to
pay necessary expenses out of existing revenues rather than increase
rates and this would be our first response to costs incurred under
Clear Skies. We have historically resisted rate increases unless
absolutely necessary, as evidenced by the fact that the rate increase
that is being discussed for fiscal year 2004 would only be our second
in the last 16 years.
Question 4, What are TVA's projected annual pollution control
capital and operating costs for the next 10 years? Please distinguish
between the two categories in your answer.
Reponse. Through 2010, TVA forecasts capital expenditures for air
pollution control equipment of over $2.3 billion dollars. This
translates to an average annual amount of approximately $300 million
per year. Annual operating and maintenance costs associated with these
controls are expected to average $34 million per year.
Question 5. What percentage of the TVA electricity consumers rate
($/kwh) does each of the categories in the previous question represent?
Please reply for each of the last 3 years and the next 3 years.
Reponse. The rates that TVA charges its distributor customers and
directly served customers are bundled rates that include all components
of TVA's cost structure. The contributions of these individual
components are not singled out. The spending levels discussed in the
above response represent about 3.8 percent of TVA revenue over this
period.
Question 6. Based on the Southern Appalachian Mountains Initiative
analysis, utilities close to the Great Smoky Mountains National Park
are having the greatest impact on air pollution problems. In order to
return the Smokies to the natural visibility range of 77 miles in the
summer, haze pollution would need to be reduced by 90 percent. But, as
I understand it, Clear Skies would only provide a visibility
improvement of 4 or 5 miles (that takes it from an average of 14 to 18
or 19 miles). Will TVA support or make deeper SOx reductions than Clear
Skies would require in order to improve the visibility problems
plaguing the park?
Reponse. The work done by the Southern Appalachian Mountains
Initiative indicates that sources in States closest to the Smokies have
a greater impact than sources in more distant States but this same
research also shows that the closer sources account for less than 50
percent of the emissions that impact the Park. In other words, as a
group, more distant sources are contributing substantially to air
quality conditions in the Park. This is one reason why TVA supports
national legislation like Clear Skies that will produce emission
reductions from these more distant sources. I testified that Clear
Skies is a very aggressive proposal. It will require deep cuts in
emissions on top of what TVA and other utilities are already making.
Because of limitations on necessary equipment and skilled labor, we
think it would be very difficult to either accelerate the schedule or
level of reductions called for by Clear Skies.
Question 7. How many TVA plants are located more than 50 kilometers
from Great Smoky Mountains National Park?
Reponse. Our Bull Run Fossil Plant is approximately 46 kilometers
from the nearest park boundary, and our Kingston Fossil Plant is
approximately 49 kilometers from the park boundary. TVA is installing
SCRs and scrubbers at these plants as part of our current system
reductions. All of our other nine coal-fired plants are located greater
than 50 kilometers from the park boundary.
Question 8. About 3 years ago, Joe Bynum of TVA testified before
this Subcommittee. He said that TVA is a Federal agency and
corporation. If that's the case, it seems inappropriate if not illegal
for TVA to be suing EPA in court over New Source Review. Why hasn't TVA
complied with EPA's administrative order on NSR, since all Federal
agencies are required to comply with such orders under the Clean Air
Act unless national security is invoked?
Reponse. There is nothing inappropriate or unlawful about TVA
requesting the Eleventh Circuit Court of Appeals to review the EPA
administrative order on NSR. EPA challenged the propriety of TVA's
lawsuit and asked the Eleventh Circuit to throw TVA out of court. By
unanimous decision, the Court found that TVA could sue EPA over the
order and has allowed TVA's lawsuit to continue. Unlike other targeted
electricity providers, TVA did not have an opportunity to contest EPA's
allegations of NSR violations before an independent trial court. The
Court of Appeals is the only entity to which TVA could turn to afford
us and our ratepayers an opportunity to make our case before an
independent entity and show that our efforts to maintain the
reliability, availability, and safety of our power plants did not and
does not violate NSR.
Question 9. If TVA fully complied with the EPA order on NSR as soon
as possible, what would be the approximate reduction in TVA plant
emissions annually and what would be the emissions performance at each
of your fossil plants?
Reponse. If TVA had to comply with the EPA NSR administrative order
as soon as possible, we do not know what the approximate emission
reduction would be. This uncertainty is due in part to the order
because it does not identify specific levels of control (these are to
be determined by the States that regulate TVA's plants) nor does it
identify specifically all of the units that TVA may have to control. I
testified to the reductions that TVA is already making on its system
and is committed to make. These reductions are very close to the level
of reductions (on a proportional basis) that EPA has required of other
utilities that have now settled EPA's NSR claims or litigation.
However, EPA in these settlements has generally required that the
agreed-to reductions be made by 2012. TVA plans to complete similar
reductions underway on its system by the end of the decade.
Question 10. Your testimony was that TVA will spend $5.6 billion by
2010 in cleaner air. In 2010, how many tons of pollution will TVA be
emitting generally and at each plant?
Reponse. Estimates for future emissions (as opposed to emission
reductions) depend on generation levels on our entire system and at
each plant in the system. However, ignoring this uncertainty, we
estimate that after we complete the installation of the additional SCRs
on the TVA system, annual NOx emissions from our system will be about
230 thousand tons per year. When we complete the installation of the
five additional scrubbers on our system, we estimate system SO2
emissions will be near 360 thousand tons per year. Attached are tables
showing our estimates of emission rates by plants for both NOx and SO2.
Question 11. How many tons of allowances did TVA plants need to buy
to ``true-up'' in each of the last 5 years, meaning that TVA facilities
had emitted more pollution than their allocation under Title IV?
Reponse. Unlike some utilities, TVA decided to install emission
controls and employ other strategies to comply with Title IV rather
than buying SO2 emission allowances. Since the inception of the Title
IV program of the Clean Air Act Amendments 1990, TVA has maintained a
bank of SO2 allowances and has not purchased allowances to ``true-up''.
Part of our strategy was to create a ``bank'' of allowances to help us
better schedule the installation of necessary controls. TVA's bank was
created by reducing emissions earlier than required, including the
installation and operation of scrubbers on our two largest units. While
TVA has periodically bought and sold allowances in the market, the net
effect has been that TVA is effectively neutral in the emissions
allowance market.
Question 12. TVA has recently announced plans to increase customer
rates by about 8 percent. Are these increases to pay for restarting
Brown's Ferry Unit 1 nuclear reactor or for NOx and SOx pollution
controls?
Reponse. TVA's recently announced plan to increase its wholesale
rates by an average of 5.9 percent is necessary to cover the increasing
costs of NOx and SOx pollution controls while continuing to pay down
the debt. By 2010, TVA will have invested nearly $5.6 billion in clean
air. While these investments to date have been made out of existing
revenues, the enormity of future clean air investments makes a rate
increase necessary.
The rate increase that is being discussed is not an attempt to pay
for the costs of restarting TVA's Browns Ferry Unit 1. By 2015, the
investment in Brown's Ferry Unit 1 is projected to pay for itself from
operating cash-flows. Additionally, TVA is exploring alternative
financing arrangements to pay a portion of the restart costs.
Question 13. You stated that TVA is spending $527 million this
fiscal year on clean air. Please describe the projects (>$5 million)
that TVA defines as clean air and how they will contribute to cleaner
air.
Reponse. These clean air related projects consist of SCR projects
to reduce NOx emissions at seven TVA plants (Allen, Bull Run, Colbert,
Cumberland, Kingston, Paradise, and Widows Creek) and SO2 reduction
projects consisting of scrubber and fuel switches at three plants
(Colbert, Johnsonville, and Paradise).
attachment
Tennessee Valley Authority
Projected 2010 Annual SO2 Emission Rates
----------------------------------------------------------------------------------------------------------------
SO2 Expected
-------------------------------------------------- 2010 SO2
Plant Unit Rate (lb/
SO2 Control Technology Status MMBtu)
----------------------------------------------------------------------------------------------------------------
Allen............................... 1-3 ..................... ..................... 0.9
Bull Run............................ Scrubber............... By 2010................ 0.3
Colbert............................. 1-4 ..................... ..................... 1.0
Colbert............................. 5 Scrubber............... By 2010................ 0.3
Cumberland.......................... 1 Scrubber............... Existing............... 0.3
Cumberland.......................... 2 Scrubber............... Existing............... 0.3
Gallatin............................ 1-4 ..................... ..................... 1.0
John Sevier......................... 1-4 ..................... ..................... 1.4
Johnsonville........................ 1-10 ..................... ..................... 1.4
Kingston............................ 1-4 Scrubber............... By 2010................ 0.3
Kingston............................ 5-9 Scrubber............... By 2010................ 0.3
Paradise............................ 1-2 Scrubber............... Existing............... 0.5
Paradise............................ 3 Scrubber............... By 2010................ 0.3
Shawnee 1-9......................... 1-9 ..................... ..................... 1.0
Shawnee 10.......................... 10 ..................... ..................... 0.6
Widows Creek........................ 1-6 ..................... ..................... 1.2
Widows Creek........................ 7 Scrubber............... Existing............... 0.5
Widows Creek........................ 8 Scrubber............... Existing............... 0.5
----------------------------------------------------------------------------------------------------------------
Tennessee Valley Authority
Projected 2007 Ozone Season NOx Emission Rates
----------------------------------------------------------------------------------------------------------------
NOx Expected
-------------------------------------------------- 2010 NOx
Plant Unit Rate (lb/
NOx Control Technology Status MMBtu)
----------------------------------------------------------------------------------------------------------------
Allen............................... 1-3 SCR.................... Existing............... 0.1
Bull Run............................ SCR.................... By 2005................ 0.1
Colbert............................. 1-4 SCR.................... By 2006................ 0.1
Colbert............................. 5 SCR.................... By 2005................ 0.1
Cumberland.......................... 1 SCR.................... Existing............... 0.1
Cumberland.......................... 2 SCR.................... By 2005................ 0.1
Gallatin............................ 1-4 LNB & OFA.............. Existing............... 0.3
John Sevier......................... 1-4 LNB & OFA.............. Existing............... 0.4
Johnsonville........................ 1-10 BLR OPT 1-6............ Existing............... 0.6
LNB U7-10.............. Existing............... 0.5
Kingston 1-8........................ 1-8 SCR.................... By 2005................ 0.1
Kingston............................ 9 OFA.................... Existing............... 0.45
Paradise............................ 1-2 SCR.................... Existing............... 0.1
Paradise............................ 3 SCR.................... Existing............... 0.1
Shawnee 1-9......................... 1-9 LNB.................... Existing............... 0.4
Shawnee 10.......................... AFBC................... Existing............... 0.3
Widows Creek........................ 1-6 LNB.................... ..................... 0.5
Widows Creek........................ 7 SCR.................... Existing............... 0.1
Widows Creek........................ 8 SCR.................... By 2005................ 0.1
----------------------------------------------------------------------------------------------------------------
Expected Technology--Other control technology may be installed.
SCR--Selective Catalytic Reduction
OFA--Over-fired Air
ANCT--Advanced NOx Control Technology
LNB--Low NOx Burner
AFBC--Atmospheric Fluidized Bed Combustion
__________
Statement of Jim Rogers, CEO and President, Cinergy Corporation, on
behalf of the Edison Electric Institute
Introduction
Good morning. My name is Jim Rogers and I am Chairman, President
and CEO of Cinergy Corp, which is a Midwest leader in electricity
generation. Our regulated delivery operations in Ohio, Indiana, and
Kentucky serve 1.5 million electric customers and about 500,000 gas
customers. Cinergy's core energy system comprises approximately 13,300
megawatts at 14 base load stations and seven peaking stations. This
portfolio includes 37 coal-based units that we operate and at least
partially own. Altogether Cinergy is responsible for the operation of
114 electric generation units at 40 locations in 15 States. And, just
so you fully understand why Cinergy is so interested in today's topic,
more than 90 percent of the megawatt hours that we generate come from
coal units. As I like to say, Cinergy is the largest non-nuclear
utility in the United States
Today I am also testifying on behalf of the Edison Electric
Institute (EEI). EEI is the association of U.S. shareholder-owned
electric companies, international affiliates and industry associates
worldwide. EEI's U.S. members serve more than 90 percent of all
customers served by the shareholder-owned segment of the industry,
generate approximately three-quarters of all of the electricity
generated by electric companies in the country, and serve about 70
percent of all ultimate customers in the Nation.
Since 2000, Cinergy has testified before this committee on several
occasions, urging it to pass legislation that would alter the way power
plant emissions are regulated. We have worked with the environmental
community, with industry and with many of you on this committee. While
we have not achieved unanimity within all of the stakeholder groups,
there has been general consensus that the current Clean Air Act fails
to deliver certainty for the environment, certainty for consumers or
certainty for the industry.
In fact, in testimony in May 2000, major environmental groups
recognized that the lack of certainty requires immediate attention:
``The Act is designed to address air pollution from the power
sector on a pollutant-by-pollutant basis. The result is that there are
numerous EPA regulatory initiatives all underway at present affecting
different pieces of the power plant pollution problem, on different
time scales, and with different geographic targets and often-different
criteria. Each of these regulatory proceedings is subject to delay and
court review the time has come to improve on the Act's current
regulatory scheme for power plants. Surely the devil will be in the
details but the stage has been set for a policy discussion that could
drive us to a better, cleaner outcome.''\1\
---------------------------------------------------------------------------
\1\Testimony before the Subcommittee on Clean Air, Wetlands,
Private Property and Nuclear Safety, Committee on Environment and
Public Works, May 17, 2000. Testimony submitted on behalf of Clean Air
Task Force, NRDC, USPIRG, National Environmental Trust and other
environmental groups.
---------------------------------------------------------------------------
The multi-emissions idea has also garnered tremendous support from
a diverse group of stakeholders including the United Mineworkers of
America, International Brotherhood of Electrical Workers, the National
Governors Association, the National Association of Counties, the
Environmental Council of States, Candidate Al Gore, and, of course,
President Bush.
The Edison Electric Institute's CEO Policy Committee on
Environment, which I chair, has for several years actively addressed
the multi-emissions issue. That committee recommended to the Board of
Directors that EEI embrace the scope and framework of the President's
Clear Skies Initiative. The Board has adopted that recommendation.
The Progress We Have Made
Before I venture into why multi-emissions legislation is so
important, let me first quickly review how far the industry has come.
The electric power industry has reduced its air emissions
significantly, even as demand for electricity has increased. Attached
is a chart that demonstrates that we have dramatically reduced our
emissions of sulfur dioxide (SO<INF>2</INF>) and nitrogen oxides (NOx.)
We have also reduced particulate matter (PM<INF>10</INF>) by over 90
percent. Moreover because some particulate matter, SO<INF>2</INF> and
NOx controls have some mercury reduction co-benefits, our industry has
also reduced mercury emissions significantly by almost 40 percent from
75 tons per year to approximately 48 tons per year.
We have done all this despite a steady climb in electricity demand
and without sacrificing the reliability and affordability of the
electricity that we produce.
Cinergy itself has invested considerable sums in clean air
compliance. In the decade of the 90's, we spent more than $650 million,
primarily to meet the SO<INF>2</INF> and NOx requirements of Title IV
of the Clean Air Act. Between 2000 and 2005, we will spend an
additional $800 million to build Selective Catalytic Reduction (SCR)
pollution control units to meet the NOx SIP Call. To meet Clear Skies,
we estimate our capital expenditures for just pollution control
equipment will top these two sums combined or $1.5 billion. And
unfortunately for Cinergy and most other utilities these costs are not
back-loaded. We estimate that more than two-thirds of these
expenditures are necessary to meet the first phase of the Clear Skies
targets. Having said all that, the widely diverse commitment to support
multi-emission legislation, even in the face of the costs I have just
noted, clearly demonstrates that the electric utility industry is
prepared to do more but we need to do it the right way.
Keeping Coal in the Fuel Mix
Low-cost, reliable electricity results, in part, from our ability
to utilize a variety of readily available energy resources coal,
nuclear energy, natural gas, hydropower, and new renewable energy
resources such as wind and solar. Fuel diversity is key to affordable
and reliable electricity. A diverse fuel mix helps to protect consumers
from contingencies such as fuel shortages or disruptions, price
fluctuations and changes in regulatory practices. A diverse fuel mix
takes advantage of regional differences in fuel availability that have
evolved over many decades. I have attached a chart showing that
different parts of the United States are dependent on different sources
of electricity.
While coal fuels slightly more than 50 percent of the generation
produced in the United States, coal fuels more than eighty percent of
the electrical generation in the Midwest. These coal plants help to
keep the price of electricity down for consumers and businesses, an
extremely important issue in Midwest States whose economies are already
financially strapped.
Coal and the Clean Air Act
But coal-based electric generators face emissions control
requirements in the Clean Air Act that are duplicative, contradictory,
costly and complex--creating enormous uncertainty for future
investment. Attached to my testimony is an EPA chart showing the
complexity of the Clean Air Act for electric generators over the next
decade (and it doesn't even include all the pre-2000 requirements that
continue now and into the future). While I think many of these
deadlines are ambitious and will be missed, the chart does show the
regulatory muddle that coal-fired power faces.
The net result of the current regulatory system is a planning
nightmare that makes it virtually impossible for electric generators to
have any stable notion of what requirements will be in place for our
plants at any point in the future. In addition to this chaos, are the
long construction cycles and large capital expenditures that prohibit
us from accurately assessing which plants should be retrofitted with
controls, which plants should be switched to different coals or to
natural gas, which plants should be retired and when any of this should
take place. The result is a system that threatens the reliability and
affordability of our nation's electric supply.
This regulatory morass also puts more pressure on the natural gas
supply and delivery systems that already are yielding gas prices of
great concern to the nation's industrial users and electric customers.
Just this past winter, spikes in natural gas prices forced the
Wheeling-Pittsburgh Steel Corp. to reduce or halt operations at three
plants in Ohio. According to the American Chemistry Council, every
dollar that the price of natural gas increases translates to about $1
billion in additional annual costs for the chemical industry that alone
employs more than one million people directly.
Stephen Brown, director of energy economics at the Dallas Federal
Reserve Bank stated that ``strong energy prices weaken the economy and
it's likely to retard the recovery. Nine of the 10 last recessions have
been preceded by sharply higher energy prices.''\2\
---------------------------------------------------------------------------
\2\Wall Street Journal, February 28, 2003 ``Effects of Gas
Shortage Rip Through Economy
---------------------------------------------------------------------------
Ironically, the present system also does not advantage those
seeking further emissions reductions from coal-fired power plants. The
piecemeal approach inherent in the current Clean Air Act necessarily
involves many sequential scientific and technical decisions by EPA and
the States that may not necessarily be resolved in favor of the
environmental community and, regardless are typically late in being
made and then litigated by all sides, causing further delay. This
regulatory soup may deliver cleaner air it hasn't so far but the chaos
that accompanies this approach makes the timing of that environmental
progress doubtful. And we will have the nation's energy policy set by
Brownian motion. The end result of all of these rulemakings randomly
bouncing against each other will form a totally unpredictable pattern.
However there will be some certain consequences significantly higher
electricity prices and further delays in environmental benefits.
For instance, implementation of National Ambient Air Quality
Standards requires a series of sequential steps including monitoring of
each air shed, designating nonattainment areas, inventorying emissions
in the nonattainment area, modeling emissions in the nonattainment
area, creating attainment demonstrations, and, finally, implementing
these plans. Each step requires administrative action by the State or
in some cases the State legislature followed by a formal approval by
EPA. Because of this cumbersome process, there have been no
nonattainment designations for either the fine particle NAAQS or the 8-
hour ozone NAAQS, both of which were established in 1997. Once those
designations of nonattainment areas occur, the Clean Air Act still
allows States up to 12 years to bring nonattainment areas into
compliance.
There is also no certainty around mercury reductions. While EPA is
under a court order to finalize a mercury rule for coal-fired power by
December 15, 2004, considerable uncertainty surrounds this endeavor.
Under the Clean Air Act, maximum achievable control technology (MACT)
standards are supposed to be based on the performance of the best
available control technology in actual use in the source category. For
coal-fired utility boilers, no high removal mercury-specific technology
is in place. What reductions have occurred result from the installation
of control technology aimed at other emissions. But data quality and
variability issues make simple extrapolation of these results (which is
necessary in determining a standard) very problematic. Reductions
fluctuate without explanation over time at a single unit; similar units
with similar controls and coals experience very different results. As a
result, EPA will need to build into the final rule emissions targets
that reflect these fluctuations.
Add to this the reality that while the Clean Air Act generally
requires a 3-year implementation period, there are extensions
available, making implementation more likely in 2009 or 2010 and that
does not count any delays spawned by the inevitable litigation, further
delaying the implementation date.
By the way, the nominal 3-year period is too short for utilities to
design, permit and install SO<INF>2</INF> scrubbers, the most cost
effective means for bituminous coal to reduce mercury emissions. If
utilities are held to the 3 years, we will be forced to focus our
capital dollars on other extremely expensive and unproven technologies
or switching to natural gas--both of which are ill-conceived outcomes
for ratepayers, shareholders and the breathing public.
Why a Multi-Pollutant Approach Makes Sense
In contrast to the current piecemeal approach to regulation
inherent in the existing Clean Air Act, a well-designed multi-emission
approach is the best roadmap for further reducing power plant
emissions. The right multi-emission bill will benefit electricity
producers, consumers and the environment, by:
<bullet> Locking in major emission reductions today
<bullet> Locking in a timeline for those reductions so that
emission control strategies can begin today resulting in cleaner air
sooner
<bullet> Lowering the cost impact for consumers
<bullet> Coordinating reductions so that utilities are able to use
multi-pollutant control technology
<bullet> Providing the electric industry in need of certainty with
the time necessary to attract capital for the multi-billions of
investments that will be needed to meet the new requirements
<bullet> Maintaining coal as a generation fuel thereby preserving
natural gas reserves for consumers, farmers and businesses that rely on
natural gas for their operations
<bullet> Saving jobs at existing coal-fired power plants and in
the coal industry and creating new jobs to construct massive pollution
control projects
<bullet> Providing flexibility through market-based programs such
as emissions trading and early reduction credits
<bullet> Easing implementation for States to meet Federal clean
air standards
The Clear Skies Act (S. 485)
The ``Clear Skies Act'' would require the most ambitious emissions
reductions ever from power plants, ensuring air quality results that
are cleaner, sooner, and cheaper. The emissions reductions would be
rock solid, due to continuous emissions monitoring and large penalties
for non-compliance. The scope and framework of the Clear Skies Act are
ambitious and, for many companies including small public power systems,
extremely painful. This is especially true for the first phase of Clear
Skies.
Clear Skies would deliver additional dramatic reductions of power
plant emissions cutting SO<INF>2</INF>, NOx and mercury emissions by 70
percent from current levels while reducing costs and providing greater
business certainty by combining multiple, overlapping regulations into
a single set of reduction requirements.
An essential component of Clear Skies is that is provides industry
with the time needed to attract capital necessary to make the
reductions without jeopardizing the balance sheets. Given the current
economic situation for our industry, we must spread the huge Clean Air
capital investments over more than a few years in order to maintain our
economic health.
And, the appropriate timelines also saves existing and creates new
jobs. A deliberate approach to meeting emission reduction goals is
essential for continued reliable electric generation and cost-
effectiveness. Retrofits of additional selective catalytic reduction
(SCR) systems for NOx, flue gas desulfurization systems (scrubbers) for
SO<INF>2</INF>, activated carbon and fabric filters for mercury will be
needed on over 100 GW of power plants, which is the equivalent of 250
medium sized generation units. Each of these installations will require
capital expenditures of anywhere from $60 million to more than $200
million.
Clear Skies represents probably one of the largest construction
projects this nation will see. These installations must be spread over
time to ensure reliability and stable prices that will not occur if too
many large units are off line for retrofits at once. A smooth timeline
also provides a steady construction program over the next 15 years. As
we found with the NOx SIP Call, if controls are pushed within too
narrow a time window, aside from increasing pressure on switching to
natural gas, there will be labor and materials shortages and
bottlenecks, which will greatly (and unnecessarily) increase costs.
Congress in the Clean Air Act Amendments of 1990 afforded the
industry a decade to comply with reductions of fifty percent in
SO<INF>2</INF> and NOx emissions. And just as Congress said in the 1990
amendments, a defined emissions target set over a reasonable timeframe
resulted in real environmental improvements. Emissions reductions of
seventy percent for three different emissions will be more costly,
resource intensive and time consuming. Providing two phases of
reductions, with the first phase limited to a fifty percent reduction,
squares not only with reality but also with the precedent established
in 1990.
As I have mentioned, the targets in the Clear Skies proposal are
aggressive. To provide the planning certainty we need to meet these
goals, the Clear Skies Initiative must also harmonize the existing
Title I requirements including New Source Review; facilitate emissions
trading; provide credit for early reductions; and distribute emission
allowances equitably. The industry also has concerns about the auction
provision that would only increase costs for those spending billions in
retrofits with no commensurate environmental benefit. S. 366
While I prefer to emphasize the positive aspects of the Clear Skies
Act, I cannot go without noting that S. 366, which Senator Jeffords and
co-sponsors introduced on February 12, 2003, is unworkable and would
cause tremendous economic hardship for my company, the industry and the
Nation. All of the bill's new requirements would be placed on top of
the existing Clean Air Act, exacerbating the complexity of an Act that
already can give the Tax Code a run for being crowned the ``most
convoluted, Byzantine and difficult to understand'' Federal law.
More importantly, S. 366 would greatly impact electricity prices,
natural gas prices, coal consumption and other key factors. As you
know, in November 2001, Mary J. Hutzler, the Acting Administrator of
the Energy Information Administration, that as a result of S. 556,
``the average delivered price of electricity in 2020 is projected to be
33 percent higher'' and ``natural gas prices are also higher by 20
percent.''\3\ An earlier EIA report pegged the loss of coal generation
at 38 to 42 percent while natural gas generation increased by 60
percent.
---------------------------------------------------------------------------
\3\Statement of Mary J. Hutzler, Acting Administrator, Energy
Information Administration, Department of Energy, before the Committee
on Environment and Public Works (Nov. 1, 2001) p.3
---------------------------------------------------------------------------
And significantly, the analysis did not actually capture the full
costs of S. 366 since many new, troublesome provisions were added in
June 2002. EIA did not model S. 556's ``Outdated Power Plants''
provision, which will almost immediately cancel out the cap and trade
program supposedly contained in the bill, and dictate compliance
strategy. In fact, the Congressional Budget Office last November
estimated the impact of S. 556 to power generators as possibly reaching
$60 billion in just the year 2012.
Conclusion
While I know the challenges are daunting, I do believe that this
Subcommittee can craft multi-emission legislation that both meets
environmental goals and provides the industry with a workable roadmap.
To do otherwise will ignore both an opportunity to make tremendous
progress on Clean Air while ensuring the economic health of the energy
industry. This industry, which faces enormous uncertainty on all
fronts, is also the target of a morass of new Clean Air Act regulations
which I have outlined today. These regulations threaten coal and
dramatically increase compliance costs, yet leave environmental
progress up in the air. With the economy in perilous shape at the
national and State level, massive increases in the use of natural gas
for generation will be very destructive. Environmental goals can and
must be met, but fuel switching and consumer price increases must be
kept to a minimum. That is why EEI and Cinergy support multi-pollutant
legislation and the scope and framework of the Clear Skies Initiative.
It delivers clean air with certainty while protecting workers,
consumers and industry.
Finally, the time to act is now. I strongly believe that the window
for passing multi-pollutant legislation will close next year due to
national elections and further regulatory developments. So I
respectfully ask this Subcommittee not to squander this unique
opportunity to create a new chapter of Clean Air progress for the
American people. It is time to find a sensible, practical solution to
the environmental issues facing coal-fired power before we jeopardize
our future.
We look forward to working with the committee, the Administration
and other key Members of Congress to help make this legislation a
reality.
Thank you.
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__________
Statement of Bradley Campbell, Director, New Jersey Department of
Environmental Protection, on Behalf of the Northeast States for
Coordinated Air Use Management (NESCAUM)
Good afternoon. My name is Brad Campbell. I am Commissioner of the
New Jersey Department of Environmental Protection. I speak today for
the eight Northeast States that make up the Northeast States for
Coordinated Air Use Management (NESCAUM). I understand that many of the
views I will offer are also shared by the States of the larger Ozone
Transport Commission. I appreciate the opportunity to testify before
the committee today to present a Northeast States' perspective on the
critically important issue of Federal action to reduce power plant
pollution.
I want to begin by emphasizing that the Northeast States strongly
support efforts to enact multi-pollutant legislation, and have so
testified before this committee in the past. We applaud the
Administration and this committee for making passage of such
legislation a priority for the 108th Congress. It has been over a
decade since the last Clean Air Act Amendments, and the time has
clearly come for a new national policy to address the broad array of
public health risks and environmental harms caused by power plant
emissions.
In the Northeast, where sulfur dioxide and nitrogen oxides
emissions from upwind power plants contribute significantly to problems
ranging from fine particle and ozone pollution to acid rain,
eutrophication of surface waters, and poor visibility in our parks and
wilderness areas, we have long appreciated the need for concerted
Federal action. With mercury contamination necessitating fish
consumption advisories for most of our lakes and rivers, we see an
urgent need for new measures to curb the continued buildup of this
persistent, potent neurotoxin in our environment. And we see the
problem of climate change as presenting unprecedented challenges for
our ecosystems and quality of life, but also great economic opportunity
for those who develop and provide the clean energy technologies of the
future.
For all of these reasons, the Northeast States have followed with
keen interest the development of several multi-pollutant initiatives
now before Congress, including the Administration's ``Clear Skies''
proposal. In evaluating each initiative, we have asked three core
questions:
<bullet> Is it comprehensive?
<bullet> Is it adequate to address the significant public health
and environmental challenges we face?
<bullet> Does it strengthen our ability to ensure continued clean
air progress, not only at the national level, but also at the local,
State and regional levels?
Recognizing Clear Skies as a starting point for the committee's
deliberations, I want to focus my remarks today on where and how we
believe Clear Skies needs to be improved to meet these tests.
First, emissions reductions can and must happen sooner. As you
know, many areas of the country need to attain new, more stringent
health-based Federal standards for ozone and fine particles in the next
4-7 years. Yet the emissions caps in Clear Skies won't be fully
implemented until 2018. Delaying necessary cuts for another 15 years is
problematic for States trying to reach attainment, but it's even more
problematic for the tens of thousands of people who experience serious
health effects associated with unnecessarily high levels of fine
particle and ozone pollution.
Second, we can and must do more to reduce mercury emissions. Given
the persistent, bioaccumulative threat posed by this neurotoxin and the
availability of highly effective control technologies, power plant
mercury emissions should be capped at levels at least 50 percent lower
than the 15 ton figure proposed in Clear Skies.
Third, national multi-pollutant legislation must address the
intractable problem of interstate pollution transport in a concrete and
effective manner, and must not weaken or remove crucial regulatory
tools that States rely on to improve air quality at the local, State,
and regional levels.
Clear Skies offers no guarantee that long-standing regional
transport concerns will be solved under a new national emissions
trading program, yet States would be prohibited from petitioning for
Federal action to address transport until after 2012. Even then, the
new hurdles Clear Skies establishes for Federal intervention would make
the current transport provisions of the Clean Air Act practically
unenforceable.
States support constructive reform of the Clean Air Act, provided
it genuinely advances our clean air objectives and is strictly tied to
the actual implementation of new reduction requirements. Clear Skies
appears to go too far in the name of regulatory reform, however,
proposing to substantially weaken or even eliminate several provisions
of the current Clean Air Act. A list of several such concerns--
including New Source Review, regulation of non-mercury toxins,
potential local impacts, and protection of States' rights--is attached
to my written testimony. The bottom line is that when it comes to
protecting public health, it is far better to have too many tools and
not need some than to have too few tools and come up short regarding
our citizens' quality of life.
The final issue I want to address is carbon dioxide. We believe it
belongs in multi-pollutant legislation because without it, the market
signals and business certainty needed to promote sound long-term
resource choices and investment decisions by the electric power
industry will remain absent. The inevitable long-term result is greater
climate risk--and higher costs--for both industry and consumers. The
Northeast States feel so strongly about the need to act on climate
change that many have made State-level commitments to reduce greenhouse
gas emissions and/or have included carbon in their own, more aggressive
4-pollutant initiatives. The several such efforts already in effect
show that the Northeast States are willing to lead by example, but as
downwind States, we can't do it all by ourselves.
In short, we support multi-pollutant legislation that cost-
effectively does both more and less than Clear Skies proposes. More--
and sooner--in terms of pollution reductions; less in terms of changing
the Clean Air Act.
This is precisely how the ``Straw Proposal'' that EPA originally
drafted as the Administration's multi-pollutant initiative could be
described. The Straw Proposal called for emissions reductions closer to
85 percent (compared to Clear Skies' 70 percent) and, importantly, for
reductions to be fully implemented by 2010-12. Moreover, EPA's own
analysis showed that the health benefits of this substantially more
aggressive approach far outweighed its costs. EPA's analysis showed
that implementing the Straw Proposal would cost $3.5 billion more than
Clear Skies in 2020, but it would produce $59 billion in additional
health benefits. We urge the committee to re-visit EPA's Straw Proposal
and other current legislative alternatives that go further toward
capturing these benefits.
In closing, let me thank you for considering our views and again
commend the Administration for pushing forward on multi-pollutant
legislation. The issues are complex, and the debate will no doubt be
intense. But the Northeast States look forward to playing a
constructive role, and we hope all sides can agree that the opportunity
and need for real progress on these issues is as great as the public
health, environmental and energy challenges we face are daunting.
Technical Concerns of the Northeast States Regarding S. 485, the Clear
Skies Act of 2003
Clear Skies diminishes or repeals entirely some of States' most
important tools for achieving Federal, health-based air quality
standards:
<bullet> New Source Review (NSR)
<bullet> The utility Maximum Achievable Control Technology (MACT)
rule as it applies to hazardous air pollutants (HAPs) other than
mercury
<bullet> Residual risk requirements for mercury
<bullet> Lowest Achievable Emission Rate (LAER) and offset
requirements and conformity for most areas of the country
<bullet> Use of Section 126 until 2012, and only then under a
higher burden of proof
<bullet> Some Prevention of Significant Deterioration (PSD)
requirements
<bullet> Protection of visibility in Class I airsheds.
<bullet> Clear Skies appears to undermine, if not preempt
entirely, State and local authority to adopt and to take State
Implementation Plan (SIP) credit for more stringent requirements for
power plants.
<bullet> Clear Skies provides no protections against adverse local
health and environmental impacts that could arise, and does not require
even a minimum level of control at each power plant.
<bullet> Regulatory relief under Clear Skies is provided
expeditiously, but corresponding emission reduction requirements are
delayed for years--a serious unbalancing of these dual policy
objectives.
<bullet> Clear Skies' approach to allocating allowances appears to
continue the practice of rewarding past high emitters, rather than
encouraging economic efficiency through output-based allocation
approaches and/or approaches that reward combined heat and power (CHP)
applications.
__________
Statement of David Hawkins, Climate Center Program Director, Natural
Resources Defense Council
Summary
Mr. Chairman and members of the Subcommittee, thank you for
inviting me to testify on behalf of NRDC, the Natural Resources Defense
Council, and its more than 500,000 members regarding S. 385, the
Administration's bill to amend the Clean Air Act. We have examined the
Administration proposal and we conclude it would harm public health,
weaken current pollution fighting programs and worsen global warming.
In my testimony today, I will emphasize three major policy failures
in the Administration's bill. S. 385 would do the following to our
nation's clean air program:
<bullet> Allow power plant pollution to continue to inflict huge,
avoidable health damages on the public.
<bullet> Repeal or interfere with major health and air quality
safeguards in current law.
<bullet> Worsen global warming by ignoring CO<INF>2</INF>
emissions from the power sector.
NRDC supports good legislation to amend the Clean Air Act. We
worked with the first Bush Administration in 1989 and supported the cap
and trade program that was enacted in the 1990 amendments to the law.
But the current Administration proposal is not good legislation: it
would take two enormous steps backward and fail to take a critical step
forward on global warming.
Fortunately, your choices are not limited to accepting the
Administration's plan or taking no action. As Senators you have the
right to ask the Administration to explain the policy choices in the
bill it has sent to you. If you conduct a thorough inquiry into the
Administration plan and alternatives we believe you will conclude that
the Administration's bill should not become law. Congress can do much
better and the public deserves much better. We want to work with you to
deliver that better solution to the public.
I. THE ADMINISTRATION PLAN IMPOSES UNACCEPTABLE AND AVOIDABLE HEALTH
COSTS ON THE PUBLIC
Air pollution from power plants imposes a staggering toll of death,
disease, and environmental contamination on the American people.
Sulfur dioxide (SO<INF>2</INF>) and nitrogen oxides (NOx) emissions
from power plants create dangerous concentrations of fine particles and
ozone (soot and smog) in the air that 175 million people breathe. Soot
and smog caused by power plant emissions is causing 30,000 premature
deaths, hundreds of thousands of asthma attacks, and millions of days
of illness and lost work each year.
Mercury emissions from power plants fall from the air and wash into
lakes, rivers, and coastal waters, where they concentrate in fish.
Mercury is a potent brain poison (neurotoxin) even in very small
amounts. Forty-four States have issued warnings against eating local
fish because of mercury contamination.
Power plant pollution is causing a major, ongoing public health
crisis. The Bush Administration's proposed air pollution plan fails to
stem this crisis.
By any comparison, the Administration's plan allows power plant
owners to continue an unacceptable and unjustifiable toll of
preventable death and illness. Measured against alternative legislative
proposals including an alternative proposal developed within the
Administration itself in 2001 the Administration plan would result in
more than 100,000 additional early deaths and millions of additional
asthma attacks and other illnesses between now and 2020. The
Administration's plan also would result in hundreds of tons more
mercury released into the atmosphere over this period. The same
conclusions emerge when the Administration's plan is measured against
faithful enforcement of the current Clean Air Act.
The Administration rejected an alternative proposal, developed by
EPA in August 2001, that would have dramatically reduced this toll of
death, illness, and environmental contamination. When expressed in
monetary terms, the benefits of the EPA proposal dwarf its cost. But
the Administration has submitted to you the much weaker plan found in
S. 385. By sending you its weaker plan, the Administration is asking
you to vote for a program that saves power plant owners $3.5 billion
per year in pollution control costs but imposes at least $61 billion
per year in additional avoidable health costs on the American people.
In our view, the Administration owes you and the American people
some straight answers to these questions:
Why should the public accept the enormous toll of preventable death
and illness from power plant pollution that will still occur under the
Administration's plan?
Why should Americans suffer tens of billions of dollars each year
in health costs that could be avoided at a fraction of that cost?
Why don't the American people have a right to expect whether from
the current Clean Air Act or any new legislation much deeper and
quicker reductions in power plant pollution than the Administration's
plan would provide?
The Administration Plan vs. the EPA Proposal
The original ``Clear Skies'' proposal was developed in 2001 by the
Environmental Protection Agency.\1\ The EPA proposal was developed with
the goal of delivering at least as much clean-up of sulfur, nitrogen,
and mercury emissions as required under the current Clean Air Act with
the purported advantages of a cap and trade program. Unfortunately,
while the Administration's plan before you today keeps the title, the
program has been converted from one that speeds clean air to one that
shields power plant owners from faster cuts in their pollution.
---------------------------------------------------------------------------
\1\U.S. EPA, ``Comprehensive Approach to Clean Power: Straw
Proposal and Supporting Analysis for Interagency Discussion,'' August
3, 2001. (``EPA August 2001 Analysis'') Available at http://
www.catf.us/publications/other/EPA--Straw--Proposal.pdf.
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After intense lobbying by power plant owners, the White House
rejected the targets and timetables in the EPA proposal and proposed a
plan allowing much greater continuing pollution from this industry. The
larger pollution loads allowed by the Administration's CSI plan are
summarized in the following chart:
Bush Administration Plan (CSI) v. EPA Proposal (Aug. 2001)
----------------------------------------------------------------------------------------------------------------
Sulfur Dioxide (SO2) Nitrous Oxide (NOx) Mercury (Hg)
----------------------------------------------------------------------------------------------------------------
EPA Proposal......................... 2 million tons in 2010. 1.9 million tons in 24 tons in 2008
2008. 7.5 tons in 2012, with
1.25 million tons in 70 percent facility-
2012. specific reduction
Administration Plan.................. 4.5 illion tons in 2010 2.1 million tons in 26 tons in 2010
3 million tons in 2018. 2008. 15 tons 2018
1.7 million tons in
2018.
----------------------------------------------------------------------------------------------------------------
The differences in the amount of pollution allowed by these two
plans, both year by year and cumulatively out to 2020, are huge.\2\ The
Administration's plan would result in 42 million tons more pollution
than the EPA proposal: For SO<INF>2</INF>, 18 million tons more through
2012 and 34 million excess tons out through 2020. For NOx, 3 million
tons more through 2012 and 8 million excess tons out through 2020. The
Administration's plan would also allow 58 tons more mercury through
2012 and 163 tons more out through 2020.
---------------------------------------------------------------------------
\2\The results shown in the figures below are based on EPA analyses
with the Integrated Planning Model (IPM), the standard modeling tool
used by all stakeholders in the power plant debate. They show the
pattern of emissions expected under the two plans, including the impact
of ``banking,'' which results in some reductions below the caps in
early years in order to emissions at levels above the caps in later
years.
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
Health Consequences of Administration Plan's Excess SO<INF>2</INF>
and NOx. The Administration's plan means large numbers of Americans
will continue to die prematurely or suffer illness caused by the
excessive pollution power plants would continue releasing under the
plan. Figure 7 shows EPA's estimates of the additional premature death
toll and illness in 2020 under the Administration's plan:\3\
---------------------------------------------------------------------------
\3\EPA calculated the incidence of premature death and illness for
both its August 2001 proposal and the Administration CSI plan using the
same peer-reviewed methods and summarized the results in its technical
analysis documents. The health comparisons in this testimony are taken
from the incidence figures presented in those documents. See, EPA
August 2001 Analysis, supra, note 1, Appendix A at 3, and EPA CSI
Technical Support Package, September 2002 at 29, at www.epa.gov/
clearskies.
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<bullet> 7100 additional premature deaths
<bullet> 4600 additional chronic bronchitis cases
<bullet> 5100 additional hospital stays and ER visits
<bullet> 7 million additional days of respiratory illness
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
While EPA has not presented the cumulative additional premature
deaths and illnesses allowed under the Administration's plan, those
numbers are even larger. Using EPA methods, the Clean Air Task Force
calculates that between 2008 and 2020, the Administration's plan would
allow more than 100,000 additional premature deaths and would allow
millions more asthma attacks and other illnesses.\4\
---------------------------------------------------------------------------
\4\Clean Air Task Force, ``Health Damages Estimates for Clear Skies
Initiative and Straw Proposal,'' April 2003.
---------------------------------------------------------------------------
While we have fundamental concerns about attempting to reduce human
death, illness, and misery into dollars, it is important to note EPA's
estimate of the costs the Administration's proposal would impose on the
public in monetary terms. EPA analyses show that the Administration
proposal would result in $61 billion more in premature death and
disease costs per year by 2020 than the EPA August 2001 proposal. While
the EPA August 2001 proposal would cost industry $3.5 billion dollars
more per year to implement, it would achieve over $15 in health
benefits for every clean-up dollar spent. For some as yet unexplained
reason, the Administration chose a plan that would inflict an
additional $61 billion a year in health damages on the public in order
to save power plant owners $3.5 billion in compliance costs. See Figure
8.
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
The additional pollution from power plants under the
Administration's plan will leave dozens of cities and counties out of
attainment of the national ambient air quality standards for fine
particles (soot) and ozone (smog) the Clean Air Act's bedrock measure
of public health protection.
The Administration's analysis shows that its plan would leave 107
counties home to 77 million Americans in violation of these public
health standards in 2010. 64 counties with 60 million residents would
remain in violation even in 2020 after the plan's delayed second-phase
requirements in 2018.
The stronger power plant emission curbs in EPA's 2001 proposal
would bring 85 percent of eastern counties with unhealthy soot levels
into compliance with the fine particle standard, and 90 percent of
eastern counties with unhealthy smog levels into compliance with the
ozone standard. Greater power plant pollution reductions would reduce
population exposure in the remaining counties and make it substantially
easier for them to reach the health standards with reasonable controls
on other sources.
Health Consequences of Administration Plan's Excess Mercury. Coal-
burning power plants are the largest industrial source of mercury air
pollution, and the only one still not subject to clean air safeguards.
Mercury emissions from power plants fall from the air and wash into
lakes, rivers, and coastal waters, where they concentrate in fish.
Mercury is a potent neurotoxin even in very small amounts. Forty-four
States have issued warnings against eating local fish because of
mercury contamination.
Methylmercury (the form of mercury that is absorbed in tissue) is
highly toxic, interfering with the development and function of the
central nervous system. Infants can ingest methylmercury from breast
milk when mothers have eaten contaminated fish. Children who eat such
fish are exposed that way as well. Children and infants are at higher
risk of mercury poisoning because their nervous systems continue to
develop until about age 14. Health effects linked to prenatal
methylmercury exposure include:\5\
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\5\U.S. EPA, 1997f. Mercury Study Report to Congress, Volume V:
Health Effects of Mercury and Mercury Compounds. EPA-452/R-97-007;
Toxicological Effects of Methylmercury, National Academy Press,
Washington, DC, 2000.
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<bullet> poor performance on tests of attention and language
<bullet> impaired memory
<bullet> inability to process and recall information
<bullet> impaired visual and motor function
One in 12 women of childbearing age has mercury levels above EPA's
safe health threshold, according to a Centers for Disease Control and
Prevention report published in January 2003 and a Journal of the
American Medical Association published last week.\6\ Nationally, this
translates into nearly 4.9 million women of childbearing age with
elevated levels of mercury from eating contaminated fish and more than
300,000 newborns at risk of neurological impairment from exposure in
utero.\7\
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\6\Centers for Disease Control, January 2003. Second National
Report on Human Exposure to Environmental Chemicals; Susan E. Schober,
et. Al, ``Blood Mercury Levels in U.S. Children and Women of
Childbearing Age, 1999-2000,'' Journal of the American Medical
Association, 289: 1667-74 (2003)
\7\Derived by the Clean Air Task Force from 2000 census data and
fertility data from the National Center for Health Statistics.
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An estimated 60,000 children are born each year at a significantly
increased risk of adverse neurological effects from mercury and current
exposure levels increase the number of children ``who have to struggle
to keep up in school and who might require remedial classes of special
education,'' according to the National Academy of Sciences.\8\ Eating
mercury-tainted fish also can harm cardiovascular and immune systems in
adults.\9\
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\8\Toxicological Effects of Methylmercury, National Academy Press,
Washington, DC, 2000.
\9\High levels of mercury in seafood linked to infertility. BJOG:
an International Journal of Obstetrics and Gynecology. 109:1121-5,
2002; Toxicological Effects of Methylmercury, National Academy Press,
Washington, DC, 2000.
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Every ton of mercury emissions from power plants adds to the
cumulative and persistent mercury loadings in our lakes and streams.
EPA's IPM runs show that under the Administration's plan, power plants
would add loadings of 163 tons more mercury through 2020 than under the
EPA proposal.\10\ Because mercury is an accumulative toxin, these added
tons will do their damage for scores of years after they are released.
---------------------------------------------------------------------------
\10\While most mercury comes from coal-fired power plants, the IPM
runs reveal that several tons of mercury come from oil-fired plants
that would not be covered under the Administration's plan (or under the
EPA 2001 proposal). These tons of mercury are also of concern and
should be covered by mercury controls under either new legislation or
existing law.
---------------------------------------------------------------------------
The cumulative and persistent nature of mercury contamination
underscores the need to minimize emissions from all sources. The weak
and delayed mercury provisions in the Administration's plan will result
in a failure to apply technology capable of removing power plants as a
significant source of mercury. This means more continued mercury
pollution not only from U.S. sources but from power plants worldwide.
As we have demonstrated with another brain poison, lead, when the U.S.
shows leadership in advancing policies to cut dangerous pollution, the
rest of the world follows. The United Nations has identified global
mercury pollution as a priority but the signal by the Administration's
plan is that the U.S. will go slow. This will almost certainly
translate into a global go-slow approach, meaning higher mercury
emissions from the rest of the world continuing to be deposited in the
U.S..
The Administration Plan vs. the Clean Air Act
It is also appropriate to assess whether the Administration's plan
would deliver more pollution reduction than the current Clean Air Act,
or less. In fact, the Administration's plan would result in millions of
tons more pollution than faithful enforcement of the current law.
SO<INF>2</INF> and NOx: The Administration claims that its plan
would reduce SO<INF>2</INF> and NOx emissions by 35 million tons more
than the current Clean Air Act through 2012. In fact, just the opposite
is true: compared to enforcing the current law, the Administration's
plan actually would allow major increases in SO<INF>2</INF> and NOx in
the next ten to 15 years.
What accounts for these different assessments of the
Administration's plan? The secret is in the Administration's yardstick.
The Administration is comparing its proposal with a misleading
``baseline'' that expressly assumes EPA does not enforce the Clean Air
Act. EPA Assistant Administrator Holmstead has candidly called this the
``Rip Van Winkle scenario.''\11\ The Rip Van Winkle scenario includes
only the power plant pollution limits that are on the EPA books at this
moment principally the SO<INF>2</INF> reductions already required by
the Title IV 1990 acid rain program and NOx cuts ordered under the
``NOx SIP call'' in 1997. The Rip Van Winkle scenario assumes that EPA
goes to sleep, doing nothing more for more for a decade.
---------------------------------------------------------------------------
\11\Mr. Holmstead so characterized the Administration's baseline
assumptions in a presentation to the National Association of Regulatory
Utility Commissioners in Washington on February 24, 2003.
---------------------------------------------------------------------------
But the existing Clean Air Act requires much more than that. It
requires the States and EPA to bring our cities and counties into
compliance with the national ambient air quality standards for fine
particles and ozone (soot and smog pollution) before the end of this
decade, unless accomplishing that task can be shown to be not possible.
EPA concedes that meeting health standards will require steeper and
faster reductions in power plant SO<INF>2</INF> and NOx emissions than
assumed in the Rip Van Winkle scenario or required by the
Administration's plan.
Undr the current Clean Air Act the pathway for meeting public
health standards begins with the designation of which cities and
counties across the country do not attain the standards, based on
several years of pollution measurements. These ``nonattainment
designations'' will take place in early 2004 for ozone and by the end
of 2004 for fine particles.\12\
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\12\The deadline for ozone designations is set forth in a consent
decree entered in American Lung Ass'n, et al. v. Whitman, D.D.C. Civil
Action No. 02-2239 (March 13, 2003). EPA has committed to an end-of-
2004 deadline for fine particle designations as ``one of the Agency's
highest priorities, due to the serious health implications of
PM<INF>2.5</INF> fine particle exposure. . . .'' Memorandum from
Jeffrey R. Holmstead, Assistant Administrator, to Regional
Administrators (Nov. 14, 2002), at 3.
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The Clean Air Act then requires the States and EPA to implement the
emission reduction measures needed to meet these public health
standards within 5 years of these designations, by 2009, or sooner if
feasible the law says ``as expeditiously as practicable.''\13\ Deadline
extensions are allowed only if a State rigorously demonstrates that
pollution control measures to meet health standards on time are not
available or feasible.\14\ No such demonstrations have been made. While
the States have primary responsibility to address local pollution
sources, the Clean Air Act gives EPA special responsibility for
interstate pollution that interferes with attainment of the health
standards in areas downwind. EPA is required to order pollution
reductions from upwind power plants where needed to bring areas in
downwind States into timely compliance with the health standards.\15\
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\13\Clean Air Act Sec. 7502(a)(2)(A). See Sierra Club v. EPA, 294
F.3d 155, 162-63 (D.C. Cir. 2002) (State must adopt all reasonably
available measures capable of advancing the date on which the polluted
area will attain the NAAQS). ``In order for the EPA to determine
whether an area has provided for implementation as expeditiously as
practicable, the State must explain why the selected implementation
schedule is the earliest schedule based on the specific circumstances
of that area. Such claims cannot be general claims that more time is
needed but rather should be specifically grounded in evidence of
economic or technologic infeasibility.'' Memorandum from John S. Seitz,
director of EPA's Office of Air Quality Planning and Standards, to EPA
regional air division directors (November 2, 1999), at 1
\14\Clean Air Act Sec. 7502(a)(2)(A). EPA also may grant a maximum
of two 1-year deadline extensions if an area has met all its
requirements and experiences ``no more than a minimal number'' of
violations of the health standards in the otherwise applicable deadline
year.
\15\Clean Air Act Sec. 7410(a)(2)(D)(I), Sec. 7426.
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Administration spokesmen refuse to say how much reduction in power
plants' SO<INF>2</INF> and NOx pollution is needed under current law to
meet the public health standards on time. But EPA's analyses of the
Administration's plan show that it will not result in sufficient clean-
up to attain the standards on the schedule required by current law.
As I have already noted, the weak emission reductions in the
Administration's plan leave 107 counties in nonattainment in 2010 and
64 counties in 2020. As mentioned above, current law requires
attainment by 2009 or sooner unless this schedule is not practicable.
But the Administration has presented no analysis arguing that its 2018
schedule for completing SO<INF>2</INF> and NOx reductions is the
fastest practicable schedule. Indeed, analyses on EPA's web site show
that while there may be some labor constraints between now and 2005,
those constraints disappear well before 2010.\16\
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\16\U.S. EPA, Engineering and Economic Factors Affecting the
Installation of Control Technologies for Multipollutant Strategies,
October 2002.
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In short, current law requires more reductions sooner than the
Administration's plan and EPA's analyses show deeper and faster
reductions are feasible.
The Administration may claim to be making a 35 million ton advance
over the Rip Van Winkle scenario, but that is a phony measure. In fact
an objective reading of the current law and EPA's analyses show that
the Administration's plan would result in far more power plant
SO<INF>2</INF> and NOx air pollution compared with enforcing the
existing Clean Air Act
Mercury: The Clean Air Act also requires faster and deeper
reductions of mercury than the Administration's plan. The current Act
requires each mercury-emitting power plant to cut its emissions by
installing the maximum available control technology (``MACT'').\17\ EPA
must issue mercury standards in 2004.\18\ Compliance with the MACT
standard is required 3 years later, at the end of 2007.\19\ Given the
extreme toxicity of mercury, the current law does not permit emissions
trading between mercury-emitting sources.
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\17\Clean Air Act Sec. 7412(n)1)(A) provides that EPA shall issue
MACT standards for power plants if the Administrator determines, after
a study, that such standards are ``necessary and appropriate.'' The
Administrator made this determination for power plant emissions of
mercury in 2000. 65 Fed. Reg. 79,825 (December 20, 2000).
\18\Puruant to a consent decree in NRDC v. EPA, et al., Case No.
92-1415 (D.C. Circuit), EPA is required to propose a mercury MACT
standard by the end of 2003, and to promulgate the standard by the end
of 2004.
\19\Clean Air Act Sec. 7412(i)((3)(A). Under certain
circumstances, EPA may allow a specific facility one extra year for
compliance. Id. Sec. 7412(i)((3)(B).
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Because EPA has not yet issued the MACT standard, the
Administration argues that no one can say how much mercury it will
allow. Mercury MACT controls on other sources, however, provide a good
indication of what is feasible. The MACT pollution controls on
municipal and medical waste incinerators, for example, eliminate at
least 90 percent of these sources' mercury emissions.
In December 2001, EPA told the Edison Electric Institute, the power
sector's main trade association, that an equivalent MACT standard for
power plants would reduce mercury emissions from 48 tons to 5 tons
nationwide by the end of 2007.\20\ In the regulatory development
process now underway, EPA is evaluating performance requirements that
would achieve a reduction to 5 tons per year. The weakest option being
analyzed by the agency (at the request of the utility industry) is a
level only slightly higher than the Administration's plan second-phase
target of 15 tons.
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\20\U.S. EPA, ``Discussion of Multipollutant Strategy, Meeting
with Edison Electric Institute'' (Sept. 18, 2001), available at http://
cta.policy.net/currentstatus.pdf.
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No one, including the Administration, has contended that a standard
as weak as the Administration's plan first-phase target 26 tons could
pass muster under the MACT requirement of current law. Even a MACT
standard that reduced emissions by only 70 percent would cut mercury
pollution to 15 tons 10 years earlier than the Administration
legislation.
The Administration's plan, however, would repeal the MACT
requirement and delay any initial mercury reductions to 2010. After
that, the Administration's plan would allow 26 tons per year from 2010
through 2017, and 15 tons every year thereafter. Compared to the 5-ton
level, the Administration's plan would allow more than five times as
much mercury pollution through 2017, and three times as much each year
after. From 2008 through 2020, that would be 284 tons more cumulative
loading of mercury under the Administration's plan.
II. THE ADMINISTRATION PLAN REPEALS AND WEAKENS CRITICAL CLEAN AIR ACT
PROTECTIONS
The Administration's bill takes with one hand while it also takes
with the other. In addition to allowing more pollution than needed to
protect public health or allowed by current law, the Administration's
bill repeals or weakens each of the specific programs and requirements
in the current Clean Air Act that are effectively reducing power plant
pollution today and that will reduce it further tomorrow.
The repealers, exemptions and weakening provisions in the
Administration's bill do great damage to fundamental precepts of the
Clean Air Act that have helped deliver cleaner air for over thirty
years.
<bullet> The current law requires cleanup of polluted areas as
quickly as practicable but the Administration's plan would grant
automatic delays to 2015.
<bullet> The current law requires new sources locating in polluted
areas to meet state-of-the-art pollution standards and avoid making
existing health problems worse but the Administration's plan would
exempt all sources (even those not covered by any cap) from those
requirements until 2015, allowing more than a decade's worth of new
pollution sources to make air quality worse.
<bullet> The current law gives States victimized by interstate
pollution effective rights to remedy that pollution but the
Administration's plan makes those remedies ineffective against power
plants and prohibits any reductions from power plants under these
provisions until 2012.
<bullet> The current law requires new and modified power plants to
limit pollution increases to avoid turning clean air areas into
polluted areas but the Administration's bill repeals this safeguard
except for a narrow 30 mile circle around certain national parks and
wilderness areas.
<bullet> The current law requires new and modified power plants to
meet up to date emission performance standards to protect areas with
clean air but the Administration repeals this safeguard for nearly all
existing plants and replaces it with a more polluting performance
standard for new plants.
<bullet> The current law requires EPA to adopt rules to minimize
toxic pollution from power plants but the Administration's bill repeals
most of those requirements and replaces them with a weak performance
requirement for mercury that is delayed 10 years from the current law's
schedule.
The Administration defends all of these dismantling provisions as
eliminating programs that are not required since its plan establishes
national caps for certain power plant pollutants. But the current
Administration ignores what the first Bush Administration recognized
that national caps cannot protect local air quality and must not
override the tools that are in the law to protect communities from
pollution increases that harm local air quality. Neither the first Bush
Administration nor Congress sought to repeal the tools that protect
local air quality when the acid rain cap program was enacted in 1990.
Repeal of those tools is no more justified now.
Delaying Attainment of Public Health Standards. Section I of this
testimony sets forth EPA's legal obligations under the current Clean
Air Act to assure the attainment of the national ambient air quality
standards for fine particles and ozone (soot and smog) by 2009 at the
latest, or sooner (``as expeditiously as practicable'').
The Administration's bill would postpone the attainment deadline
for the country's unhealthy air areas by 6 years or more. As long as
States could show that their polluted areas would attain the smog and
soot standards by 2015, those areas would be labeled ``transitional''
rather than ``nonattainment'' and be granted automatic extensions of
the deadlines to meet health standards.\21\ Since the requirement to
attain the standards ``as expeditiously as practicable'' applies only
to nonattainment areas,\22\ States would be under no obligation to
bring air quality into line with the health-based standards any earlier
than 2015. In other words, the Administration's bill would force as
many as 175 million Americans to breathe harmful amounts of air
pollution for at least 6 years longer than current law allows.\23\
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\21\H.R. 999 I.H. (``Sec. 3. Other Amendments''), at 227 lns. 5-
22.
\22\See 42 U.S.C. Sec. 7502(a)(2).
\23\Current law permits limited postponement of the 2009 deadline
only where the EPA makes an appropriateness determination ``considering
the severity of nonattainment and the availability and feasibility of
pollution control measures.'' Id. Sec. 7502(a)(2)(B). See also id.
Sec. 7502(a)(2)(C), (D). The Administration's bill does not condition
the availability of the 2015 postponement on any such determination.
See H.R. 999 I.H. at 227 lns. 5-22.
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By labeling hundreds of polluted counties ``transitional'' rather
than ``nonattainment,'' the Administration's bill also would allow
every major industrial source built or modified in those areas to make
health problems worse by evading the lowest achievable emissions rate
(``LAER'') and offset requirements of current law. Under current law,
anyone wishing to build or modify a major source of air pollution in a
``nonattainment'' area must ensure that the source employs state-of-
the-art methods to minimize its pollution (LAER) and must offset any
added emissions so as not to degrade the already poor air quality in
the area.\24\ This requirement applies not just to power plants, but to
all other major air pollution sources (oil refineries, chemical plants,
manufacturing facilities, etc.) as well.\25\
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\24\42 U.S.C. Sec. Sec. 7502(c)(5), 7503(a)(2), (c).
\25\Id. Sec. 7502(c)(5).
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Under the Administration's plan, these health safeguards would no
longer apply in areas relabeled as ``transitional.'' In other words,
the Administration's bill would make it easier for the owners of oil
refineries, chemical facilities, paper mills, and power plants to churn
out additional pollution in hundreds of counties where the air is
already unhealthy to breathe. It is important to emphasize that while
the Administration's plan caps only power plant emissions the bill
would create this loophole for all major industrial sources. Amazingly,
the Administration has not offered a word of justification for this
remarkable assault on the Act's public health safeguards.
Weakening Safeguards Against Upwind Pollution. Pollution from power
plants in upwind States is responsible for violations of the soot and
smog standards in many downwind States. The delay of attainment
deadlines through the ``transitional area'' scheme described above
would assure that many such downwind States receive more pollution
transported from upwind areas over the next 12 years. The
Administration's bill exacerbates this problem by eliminating, as a
practical matter, the rights of downwind States under section 126 of
current law to remedy pollution transported from upwind sources. Now
that Federal courts have upheld the rights of States to combat
interstate pollution, the Administration's bill would effectively
eliminate these rights by establishing a series of new, insurmountable
tests before a harmed downwind State can gain relief. And even if the
State is able to pass these new extreme tests, the bill prohibits any
emission reduction from power plants before 2012, no matter how
compelling the case is that the power plants are creating serious
health problems that can only be abated with stronger emission
controls. Even if EPA itself believes that better controls are
warranted and essential, it too is prohibited from requiring any
cleanup from power plants before 2012.
Section 3(r)(6) of the Administration's bill amends section 126 of
the current Clean Air Act to prohibit EPA from ordering reductions in
power plant pollution transported from upwind States unless EPA makes a
series of new, onerous findings: EPA must find that every cheaper
reduction (in terms of cost per ton of emissions and in terms of cost
per microgram of air quality improvement) has already been made from
industrial boilers, on-road mobile sources, off-road mobile sources,
and any other category identified by EPA.\26\
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\26\See Sec. 3(r)(6)(D) (adding CAA Sec. 126(d)(2)(B)(i) & (ii)).
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These provisions would effectively override key court decisions
that have upheld EPA's reasonable interpretation of the Act set forth
in two rulemakings addressing interstate transport of NOx
pollution.\27\ These cases upheld EPA's determination to require
reduction of upwind emissions that ``contribute significantly'' to
downwind pollution. While it was necessary for EPA to show that these
reductions are cost-effective, the agency was not required to show that
all other more cost-effective ways to reduce emissions and
concentrations had been exhaustively required first.\28\ In doing so,
the courts upheld EPA's rejection of far more onerous and unmanageable
approaches pushed by industry and opposing upwind States.\29\
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\27\63 Fed. Reg. 57356 (Oct. 27, 1998) (NOx SIP Call rulemaking);
64 Fed. Reg. 28250 (May 25, 1999) and 65 Fed. Reg. 2674 (Jan. 18, 2000)
(Section 126 rulemakings).
\28\See Michigan v. EPA, 213 F.3d 663 (D.C. Cir. 2000) (upholding
NOx SIP Call approach); Appalachian Power Co. v. EPA, 249 F.3d 1032
(D.C. Cir. 2001) (upholding same approach in section 126 rulemaking).
\29\See Michigan, 213 F.3d at 675-680; Appalachian Power at 249
F.3d at 1044-1051.
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In particular, EPA found in 1998 that the second approach
demonstrating cost-effectiveness per microgram of air quality
improvement would be utterly impractical. Furthermore, it would be
inconsistent with an emissions trading approach, which requires
emissions to be treated as equivalent on a ton-for-ton basis, and
cannot work if each ton of emissions must be weighted differently
depending on its distance from a particular spot where air quality
improvement per microgram is assessed.\30\
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\30\U.S. EPA, ``Rulemaking for Section 126 Petitions--Responses to
Comments Which are Outside the Scope of the June 24, 1999 Notice of
Proposed Rulemaking,'' Docket A-97-43, XII-A-01, 65 Fed. Reg. 52931
(Aug. 31, 2000).
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In addition to imposing new, essentially insurmountable tests, the
bill would block EPA from granting downwind States any relief from
upwind power plant pollution until after 2012. This stands in stark
contrast to the extremely expedited relief structure of the current
Clean Air Act. As EPA has noted:
Section 126 provides a tool for downwind States, the entities with
most at stake, to force EPA to confront the issue directly. It also
sets up an abbreviated, and hence potentially faster, process to
achieve emission reductions. . . . . In contrast [to the SIP process]
Congress required very expeditious EPA action on a [section 126]
petition and from 3 months up to 3 years for sources to comply.\31\
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\31\65 Fed. Reg. 2674, 2681 (Jan. 18, 2000).
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In an example of ``Catch-22,'' section 3(r)(6) of the
Administration's bill states that before giving a State relief from
transported pollution from power plants, EPA must first determine that
the State has achieved all more cost-effective emissions reductions (on
both a per-ton and per-microgram basis) from both on-road and off-road
mobile sources. But this places States in an impossible situation,
since the Clean Air Act elsewhere preempts States from controlling
emissions from on-road vehicles and engines, CAA Sec. 209(a), and
nonroad vehicles and engines, CAA Sec. 209(e).\32\
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\32\States may control these mobile sources of emissions only by
adopting California standards. CAA Sec. Sec. 177 & 209(e)(2).
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As EPA has previously recognized, ``Congress provided section 126
to downwind States as a critical remedy to address pollution problems
affecting their citizens that are otherwise beyond their control, and
EPA has no authority to refuse to act under this section.''\33\ But the
Administration's legislative response to the problem of transported air
pollution is to saddle downwind, polluted States with insurmountable
barriers to relief.
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\33\65 Fed. Reg. at 2681/1 (emphasis added).
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Eliminating Safeguards Against Pollution Hotspots. Under the
Administration's bill, a power plant can pollute at any level so long
as it buys sufficient pollution allowances credits from other
plants.\34\ The fact that power plant pollution may decline nationwide,
however, provides no protection to the communities affected by a plant
whose emissions stay the same, or even increase, because of its owner's
reliance on emissions trading. The ``New Source Review'' (NSR)
provisions in the Clean Air Act provide important protection against
the emergence of ``pollution havens'' or ``hotspots'' in response to an
emissions trading system. NSR requires any person planning to build a
new major pollution source, or to change an existing one in a way that
will cause an emissions increase, to demonstrate that the source will
use the most effective pollution control methods available and that its
emissions increase will not degrade air quality either locally or in
downwind communities\35\ or national parks.\36\
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\34\H.R. 999, (``Sec. 403. Allowance System'') at 14 ln. 15 15 ln.
18.
\35\42 U.S.C. Sec. Sec. 7475, 7501-7503. Current law requires a
company to demonstrate that the planned construction or other change
will not cause or contribute to pollution in excess of certain maximum
allowable increases and maximum allowable concentrations that are
separated from the NAAQS by a safety margin. 42 U.S.C.
Sec. 7475(a)(3)(A). The administration's bill simply requires a
demonstration that the planned activity will not cause or contribute to
a violations of or inability to achieve the NAAQS itself. H.R. 999 I.H.
(Sec. 483(c)(1), (2)) at 224 ln. 15 225 ln. 8.
\36\Current law requires a company to demonstrate that the planned
construction or other change will not degrade visibility or other air
quality related values at any national park. 42 U.S.C. Sec. 7475(a)(5),
(d). If the administration's bill were enacted, such a demonstration
would not be required unless the plant in question were located within
fifty kilometers of a park. H.R. 999 I.H. (Sec. 483(b)) at 224 lns. 8-
14. This despite the fact that emissions from major pollution sources
have been shown to have a negative impact on parks as far as 700
kilometers away. See Gebhart, K., ``Preliminary Particulate Sulfur
Source Attributions for BRAVO by Trajectory Mass Balance Regressions''
(presentation for BRAVO conference call on November 21, 2002) (analysis
on file with the Clean Air Task Force).
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The Administration's bill would eliminate Federal New Source Review
provisions for power plants, however.\37\ If the bill were enacted, a
company would be free to cause even massive pollution increases by
building a new plant or expanding an old one without adopting up-to-
date pollution controls or determining whether air quality will get
worse locally or downwind.
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\37\See H.R. 999 (``Sec. 483. Exemption from Major Source
Preconstruction Review Requirements and Best Available Retrofit Control
Technology Requirements'') at 223 lns. 10-14 (``An affected unit shall
not be considered a major emitting facility or major stationary source,
or a part of a major emitting facility or major stationary source for
purposes of compliance with the requirements of parts C and part D of
title I.'').
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To replace the Federal NSR program, the Administration's bill calls
on States to submit State Implementation Plan (SIP) revisions to create
a new and less protective State New Source Review program. The bill
sets no deadlines for these SIP revisions. The bill does not clearly
provide that the public must have an opportunity to comment on a permit
application. The bill authorizes new loopholes for such State programs
that would allow existing power plants to increase emissions by tens of
thousands of tons each with no public process. And the bill exempts
existing and new power plants everywhere in the country (except within
a narrow 30-mile circle around national parks) from the current law's
safeguards for clean air areas.
Replacing Up-To-Date Technology with Obsolete Standards. In place
of repealed requirements for case-by-case determination of up-to-date
pollution control performance, the Administration's bill would
substitute a requirement that EPA establish certain emissions standards
that would apply to new power plants.\38\ The bill sets these standards
at much more polluting levels, however, than the emissions levels of
plants being built today. In other words, these standards are already
obsolete and behind the curve of current requirements. For example:
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\38\Id. (Sec. 481(b)(1), (c)(1), (d)) at 205 lns. 1-9, 207 ln. 9
211 ln. 7.
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For boilers and integrated gasification combined cycle (``IGCC'')
plants, the bill sets a SO<INF>2</INF> emissions limit of 2.0 lb/
MWh.\39\ Three recently issued permits for coal-fired boilers set
SO<INF>2</INF> emissions limits of 1.0, 1.2, and 1.0 lb/MWh,
respectively.\40\
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\39\Id. (Sec. 481(c)(1)((A)) at 207 lns. 17-18.
\40\Wygen 2 plant in Wyoming; Roundup plant in Montana; IPP plant
in Utah.
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For boilers and IGCC plants, the bill sets a NOx emissions limit of
1.0 lb/MWh.\41\ Three recently issued permits for coal-fired boilers
each set NOx emissions limits of 0.7 lb/MWh.\42\
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\41\H.R. 999 (Sec. 481(c)(1)(B)) at 207 lns. 19-20.
\42\Wygen 2 plant in Wyoming; Roundup plant in Montana; IPP plant
in Utah.
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For boilers and IGCC plants, the bill sets a PM emissions limit of
0.2 lb/MWh.\43\ Three recently issued permits for coal-fired boilers
set PM emissions limits of 0.12, 0.15, and 0.15 lb/MWh,
respectively.\44\
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\43\H.R. 999 (Sec. 481(c)(1)(C)) at 207 lns. 21-22.
\44\Wygen 2 plant in Wyoming; Roundup plant in Montana; IPP plant
in Utah.
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The bill does not place any obligation on EPA to update these
already-obsolete emissions standards until 8 years after the agency
incorporates them into its regulations.\45\ Even then, the bill gives
the agency discretion to avoid reviewing and updating the
standards.\46\
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\45\H.R. 999 (Sec. 481(e)(1)) at 211 lns. 8-18.
\46\Id. (Sec. 481(e)(2)) at 212 lns. 3-8.
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This is a sharp contrast with current law, under which the case-by-
case review of LAER and (in areas other than nonattainment areas)
``best available control technology'' (BACT) assures that emission
performance for new and modified plants keeps pace with improvements in
pollution control capabilities. Because of BACT and LAER, the state-of-
the-art in industrial pollution control has repeatedly graduated to
successively higher levels of environmental performance as sources were
built or modified over the last two decades.
For example, a review of EPA's data base for BACT and LAER
determinations reveals that over just the past 10 years, the state-of-
the-art in NOx emissions controls for utility boilers and furnaces has
advanced from no controls (``good combustion practices'') to low NOx
burners to selective catalytic reduction (``SCR'') to selective non-
catalytic reduction (``SNCR'') and circulating fluidized bed
(``CFB'').\47\ Recent determinations by permitting authorities show
that further improvements are in the wings.\48\
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\47\See http://cfpub1.epa.gov/rblc/cfm/basicsearch.cfm.
\48\See, e.g. Letter from Richard L. Goodyear, permit programs
manager, State of New Mexico Air Quality Bureau, to Larry Messinger,
Mustang Energy Company (December 23, 2002), at 1-2 (``The analysis must
include a discussion of the technical feasibility and availability of
IGCC and CFB for the proposed site in McKinley County . . . .'').
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As EPA and the courts have recognized, Congress intended the Clean
Air Act to perform this ``technology-forcing'' function.\49\ The
Administration's bill erases that function, leaving in its place static
emissions standards that do not even represent the state-of-the-art in
pollution control today.
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\49\See ``Background Statement on the Environmental Protection
Agency's Top-Down Policy'' (June 13, 1989) (citing S. Rep. No. 95-252,
95th Cong., 1st Sess. 31 (1977)), reprinted in, 3 A Legislative History
of the Clean Air Act Amendments of 1977 at 1405; 123 Cong. Rec. A9171
(remarks of Senator Edmund G. Muskie), reprinted in 3 Legislative
History at 729. See also WEPCO v. EPA, 893 F.2d 901, 909 (7th Cir.
1990).
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EPA Assistant Administrator Holmstead has acknowledged in testimony
delivered before this committee that the New Source Review requirements
have not adversely impacted construction or investment associated with
new power plants. He testified that:
With regard to the energy sector, EPA found that the NSR program
has not significantly impeded investment in new power plants or
refineries. For the utility industry, this is evidenced by significant
recent and future planned investment in new power plants.\50\
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\50\Testimony delivered Assistant Administrator Jeffrey Holmstead
to the U.S. Senate Committee on Environment and Public Works on July
16, 2002.
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This committee should recall that in 1990, the first President Bush
did not seek to repeal these safeguards when he sought a cap and trade
program for SO<INF>2</INF> from power plants and Congress did not enact
such a repeal. Those programs have worked in tandem for the past 13
years. The Act's safeguards for local air quality have not interfered
with the acid rain cap and trade program and have not prevented the
very large economic savings provided by the cap and trade mechanism.
Experience proves that both programs can work together and this
Congress should not ignore that fact.
Eliminating Protections for National Parks. The Administration's
bill would exempt owners of new and modified power plants from the
obligation to meet up to date pollution performance standards (BACT)
and examine the impacts of any added pollution on national parks or
wildernesses--called ``Class I areas``--(except those within 30 miles
of the plant). The bill also eliminates the role of the Federal land
manager (typically the National Parks Service superintendent for a
national park) in assuring that the air quality of these treasured
lands is protected.
Under current law, if a new or expanded pollution source could
affect a Class I area, the Federal land manager has an opportunity to
review the draft permit and an accompanying air quality analysis to
assure that factors relevant to protecting national parks and
wilderness areas are taken into consideration, and that harmful effects
are mitigated. The Federal land manager's review would be eliminated
under the Administration's bill for all plants outside the 30 mile
cordon around each park or wilderness.
The Administration's bill would also repeal the current Clean Air
Act program to lift the haze shrouding the nation's parks by obligating
the States to require the best available retrofit technology (``BART'')
on all major sources of air pollution built between 1962 and 1977 that
contribute to the haze.\51\ The Administration's bill exempts all power
plants the primary contributor to park haze from the BART
requirement.\52\ In so doing, the bill lets off the hook those
intransigent companies that have not yet installed the best available
retrofit technology on their plants.
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\51\42 U.S.C. Sec. 7491(b)(2)(A).
\52\H.R. 999 (Sec. 483(a)) at 223 lns. 10-18.
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If the Administration elected to enforce the requirement, instead
of lifting it, the installation of BART on just the largest power
plants would reduce annual SO<INF>2</INF> emissions by 4.5 million
tons, and annual NOx emissions by 1.9 million tons.\53\ Those
reductions alone would be equivalent to what the Administration's bill
would purportedly achieve in its entire 8-10 year first phase.
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\53\MSB Associates, analysis using EPA list of BART eligible
sources exceeding 750 MW (analysis on file with the Clean Air Task
Force).
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Eliminating Protections for Other Areas With Clean Air. The
Administration's bill weakens air quality safeguards across the rest of
the country. Except in the 30 mile cordon around our national parks and
wildernesses, the bill eliminates any case-by-case review of proposed
new power plants anywhere in the country. Under current law, plants
locating in the vast majority of the country areas classified as
``Class II PSD areas,'' with air quality better than the national
health standards must undergo New Source Review and demonstrate that
they will be equipped with ``best available control technology'' (BACT)
and will not cause excessive degradation of air quality (``pollution
increment consumption'') in the surrounding area. And, as already
mentioned, plants locating in nonattainment areas must meet the
``lowest achievable emission rate'' (LAER) and must offset any
additional pollution.
The Administration's bill repeals these requirements, creating a
vacuum where there is no federally enforceable obligation for new or
modified power plants to provide anyone with notice of their intent to
build or expand, no requirement to review air quality impacts, and no
requirement to case-by-case review of emission control performance. The
only requirement would be to meet the obsolete national standard
described above.
Weakening Safeguards Against Hazardous Air Pollution. I have
already described how the Administration's bill would repeal the
current Clean Air Act's requirement for applying ``maximum achievable
control technology'' (MACT) to power plants to curb their mercury
emissions. The bill requires no mercury controls until 2010 (a 2-year
delay over the current law) and substitutes much weaker mercury caps in
place of the plant-by-plant MACT requirement. For 2010 through 2017,
the bill's 26 ton cap represents merely the mercury reductions
incidental to the bill's phase-one caps for SO<INF>2</INF> and NOx.
Mercury cuts beyond these incidental reductions are not achieved until
2018. In other words, the Administration's 3-pollutant bill is
effectively a 2-pollutant bill until 2018.
Also repealed with mercury MACT is the current law's requirement
that EPA establish MACT standards for all hazardous air pollutants
emitted by power plants, not just mercury. For hazardous pollutants
other than mercury, the bill leaves only the authority to set
``residual risk'' standards through a complex risk-based process, but
the earliest that those regulations are permitted to take effect is
2018 a full 11 years after the MACT compliance deadline of the current
Clean Air Act. Moreover, the bill repeals the Clean Air Act's
``residual risk'' protections entirely for mercury without regard to
any health risks that remain under the bill's weaker mercury caps.\54\
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\54\Sec. 3(a)(5).
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The Administration's bill allows unrestricted emissions trading of
mercury, something never before allowed under the Clean Air Act for a
hazardous air pollutant. The current Clean Air Act requires mercury
reductions at each power plant, based on the emissions reductions
achievable through advanced technologies applied to individual
emissions units. By allowing mercury trading, the bill would allow some
power plants not to reduce their emissions at all. Instead, they could
buy mercury emission allowances from other power plants and do nothing
to stop contamination of local lakes and streams. Some plants could
even increase their mercury emissions.
Indeed, EPA's own analyses of the Administration's bill acknowledge
mercury pollution increases above today's levels from ``specific
sources in some States,'' due to the trading features of the bill and
the bill's repeal of the 2007 MACT standard.\55\ This dirtier outcome
would not be allowed if the plant-specific MACT standard were to remain
in effect. EPA's data also show that parts of New England, the Great
Lakes, Gulf Coast region and other areas will receive only very small
reductions in mercury deposition under the bill.\56\
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\55\See U.S. EPA, ``Technical Support Package for Clear Skies,''
Section B: Human Health and Environmental Benefits, at 44.
\56\Id.
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Because unrestricted trading of mercury emissions could lead to
toxic hotspots where mercury contamination increases, the Clean Air Act
as well as other legislative proposals (notably the Clean Power and
Clean Smokestacks Acts)--bar trading in mercury emissions. Hotspot
risks under the Administration's bill are made worse by the fact that
the bill does not require continuous emissions monitoring (CEMS) for
mercury. EPA itself has identified continuous monitoring and reporting
as design features essential to the environmental integrity of the acid
rain trading program.\57\ Mercury emissions trading is allowed even
without continuous monitoring so long as the Administrator determines
that ``CEMS for mercury with appropriate vendor guarantees are not
commercially available.''\58\ The responsible approach would be to make
any mercury trading (if some carefully limited program were shown to
prevent hotspots) contingent on the development of reliable continuous
monitoring systems for the pollutant.
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\57\Testimony of Jeffrey Holmstead, Assistant Administrator,
Office of Air & Radiation, U.S. EPA, Before the Subcommittee on Public
Health of the Committee on Health, Education, Labor and Pensions, U.S.
Senate, at 4-5, September 3, 2002.
\58\Sec. 405(a)(2)(B)(ii).
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III. THE ADMINISTRATION BILL ALLOWS UNLIMITED GROWTH IN CARBON DIOXIDE
FROM POWER PLANTS, WORSENING GLOBAL WARMING
As you know, even though electric power plants are responsible for
40 percent of U.S. carbon dioxide (CO<INF>2</INF>) emissions, the
Administration's bill does not contain any provision to reduce or even
limit the growth in these emissions. This feature of the
Administration's bill is not just an omission; it is a serious
affirmative mistake that will make it more difficult for the U.S. to
take responsible action in the near future to begin addressing the real
dangers of global warming.
The Administration's bill would set in motion major capital
expenditures at existing power plants over most of the next two
decades. To implement such a program without addressing CO<INF>2</INF>
emissions is to invite shortsighted investment decisions and promote
even greater resistance to proposals to limit CO<INF>2</INF> when we do
decide to act. A choice to ignore CO<INF>2</INF> emissions in a power
plant bill is not just a choice to leave this decision open for
tomorrow. It is a decision that will raise the cost and difficulty of
beginning to address the nation's largest source of global warming
pollution.
Such a choice is not responsible. Delay will turn what is still a
manageable threat into a runaway, unmanageable problem. In the national
security context, the current Administration has no difficulty
understanding that waiting until a danger has fully developed runs the
risk of foreclosing our ability to avert that danger. This logic
applies strongly to the danger posed by global warming. If we wait
until this danger has fully developed, it will be too late to prevent.
Global warming is a problem that has enormous built-in inertia. The
most important global warming gas, CO<INF>2</INF>, stays in the
atmosphere for hundreds of years. The largest sources of
CO<INF>2</INF>, fossil-fueled power plants, have lifetimes of 50 years
and more. Managing the threat of global warming is like navigating a
supertanker to avoid running aground we have to start altering course
long before we arrive at the reef. While in the global warming context
we may not have identified exactly how close we are to the reef or how
severely our ship will be damaged from striking it, it is a fact that
if we steam ahead with our current energy systems until we have all the
evidence required to satisfy the skeptics, we run very large risks of
locking ourselves into very large-scale unavoidable damage.
We are already unalterably committed to a future in which the
concentration of global warming gases will be substantially higher than
pre-industrial levels. To avoid reaching concentrations that are
several times pre-industrial levels, we will need to change the
technology we use to generate power and for transportation. In the
decision whether to include CO<INF>2</INF> in a power plant emission
control bill, this Congress will either stimulate investors to get
serious about developing and using new climate-friendly power
technology or it will send a signal to procrastinate.
Advocates of delay argue we should not act until we know exactly
how sensitive the climate is to added CO<INF>2</INF> and exactly how
harmful a given temperature rise will be. Unfortunately, we cannot put
the world on ``pause'' while we do more research. We cannot afford to
wait for resolution of these uncertainties before we begin to change
energy investments. The CO<INF>2</INF> we emit may cause a temperature
rise at the high end of published estimates, the low end, or in
between; the damage done by a specific temperature rise also may be
larger or smaller. But once we know for sure, it will be too late to
change course. The fact is that continuing on our current path will
commit us to an outcome that we will not be able to undo.
A paper by Ken Caldeira and colleagues published 2 weeks ago in
Science magazine demonstrates the danger of continued procrastination.
Using mid-range estimates of climate sensitivity, the authors conclude
that we would need to be building the equivalent of about 20
CO<INF>2</INF>-emission-free power plants a week worldwide, starting
now, to keep global temperatures from increasing more than 2
Centigrade.\59\ Consider that global temperature in the last ice age
was 5 C cooler than today and you can appreciate that 2 would be a very
big change. On our current path, however, the world is on track to add
the equivalent of less than 2 CO<INF>2</INF>-emission-free plants per
week between now and 2030\60\. The authors go on to demonstrate that
even assuming a best-case outcome for these uncertainties, we still
need a massive increase in CO<INF>2</INF>-emission-free energy
resources compared to current forecasts.
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\59\K. Caldeira et al., ``Climate Sensitivity Uncertainty and the
Need for Energy Without CO2 Emission,'' Science 299, 2052 (2003).
\60\International Energy Agency, World Energy Outlook 2002,
October 2002.
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Today people talk about the need to design climate policy to avoid
``premature retirement'' of existing capacity. But tomorrow's
``existing'' capacity is being designed and financed today and it is
not being designed to be climate friendly. Policy procrastination just
locks us in to more high-carbon capacity that will either have to be
retired ``prematurely'' or will emit amounts of CO<INF>2</INF> that
could make it impossible to stabilize concentrations of global warming
emissions at safe levels.
The U.S. Energy Information Administration forecasts that the
United States will build the equivalent of over 1350 medium-sized
fossil energy power plants between now and 2025 (405,000 MW).\61\ The
path we are on today will result in skyrocketing emissions of
CO<INF>2</INF> in the U.S. and globally. Figure 9 shows current
forecasts for the U.S. and the world over the next 25-30 years: U.S.
emissions are projected to increase by 40 percent and world emissions
by nearly 70 percent over year 2000 levels. These emissions will stay
in the air for hundreds of years making the task of protecting the
climate that much harder and more expensive.
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\61\U.S. Energy Information Administration, Annual Energy Outlook
2003.
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
The Need to Set Real Policies Now
The problem of delay is particularly intense with respect to the
electric power sector. As we know, power plants have extremely long
lives. There are plants in the U.S. more than 60 years old that are
still operating today. New plants built in the next decade or two will
be operating in the third quarter of this century, and their cumulative
emissions will determine how much the climate warms. While we
procrastinate, energy demand keeps growing and more investments are
made in power plants that are no less carbon-emitting than yesterday's
plants.
Which brings us to the choice before you. Including provisions to
limit CO<INF>2</INF> in a power plant bill can speed the process of
bringing advanced technologies to market; leaving CO<INF>2</INF> out
will keep that activity on the back burner. Analyses discussed in
NRDC's testimony to the full committee in June 2002 show that it is
possible to craft legislation that limits power plant CO<INF>2</INF>
with modest impacts on the economy.\62\
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\62\See Testimony of David G. Hawkins on S. 556, June 12, 2002.
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The Administration and many in Congress have resisted including a
binding limit on CO<INF>2</INF> in power plant legislation out of an
apparent belief that any binding cap will have unacceptable impacts on
electricity rates and fuel diversity. That is not correct.
For example, even the Administration's own analyses conclude that
some versions of binding CO<INF>2</INF> caps would have very modest
impacts on electricity rates and fuel use, even when using a number of
conservative (and we believe, flawed) assumptions.\63\ In September and
October 2001, both EPA and EIA analyzed a binding carbon cap for the
electric sector using a set of requirements specified by Chairman
Voinovich, former Senator Smith, and Senator Brownback.\64\ Among the
scenarios examined by EIA and EPA were requirements to cut
SO<INF>2</INF>, NOx, and mercury emissions by 75 percent from 1999
levels in two stages (2007 and 2012) and to cap power sector
CO<INF>2</INF> emissions at forecasted 2008 levels.\65\
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\63\A number of flaws in the administration's analyses of ``four-
pollutant'' bills are described in NRDC's testimony of June 12, 2002 at
the full Committee hearing on S. 556, the Clean Power Act. Testimony of
David G. Hawkins at 12-16.
\64\Energy Information Administration, ``Reducing Emissions of
Sulfur Dioxide, Nitrogen Oxides, and Mercury from Electric Power
Plants,'' September 2001. (``EIA S-V-B report'') and U.S. EPA,
``Analysis of Multi-Emissions Proposals for the U.S. Electricity
Sector,'' October 2001.
\65\Letter of June 8, 2001 from Senators Smith, Voinovich, and
Brownback to John Weiner, EIA, reproduced in EIA S-V-B report at
Appendix A. Compliance with the CO2 cap could be achieved with on-
system reductions or credits for ``sinks'' enhancements or reductions
from other source categories. EIA's report calculated costs assuming
that only CO2 emission reductions from U.S. energy facilities would be
used for compliance.
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EIA's report calculated this set of requirements would result in an
average electricity rate of 7.1 cents per kwh, compared to a 1999
average electricity rate of 6.7 cents per kwh. EIA projected coal
consumption in 2020 would be the same as in 1999.\66\
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\66\While this result represents a decrease in coal consumption
from no-control forecasts, EIA's report assumed no penetration of coal-
gasification technology in the electric sector, even by 2020. This is
inconsistent with the Department of Energy's programmatic goals for
this technology. EPA's report on the S-V-B scenario forecasts smaller
price and fuel impacts than EIA's, due to EPA's broader assumed trading
options than EIA assumed.
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While power sector CO<INF>2</INF> emissions need to decline below
2008 levels, the key point is the need to set a schedule now for
limiting and then decreasing emissions of CO<INF>2</INF>. By adopting a
schedule now, you can provide the maximum lead-time for the industry
and achieve long-term reductions at the most gradual rate of change. By
adopting a schedule for limiting carbon emissions you put market forces
to work to deliver the clean energy resources we will need to meet
economic growth without disrupting the climate that strongly influences
the quality of life in our country and others around the globe.
We can do three things to limit carbon emissions from energy use.
First, produce and use energy more efficiently. Second, dramatically
increase our reliance on renewable energy resources. Third, pursue
methods to capture and permanently store CO<INF>2</INF> from the fossil
energy sources we continue to use. All three of these methods will be
stimulated by adopting a program to limit CO<INF>2</INF> emissions from
the power sector. All three will languish if Congress ignores
CO<INF>2</INF> in a power plant bill.
Members of this committee and others in Congress are concerned
about the impact of climate policy on coal. The U.S. and other large
countries, including China, India, Russia (to mention just a few) have
abundant coal resources. While coal and other fossil fuels have
continuing environmental impacts, including global warming emissions,
the reality is that large amounts of coal will continue to be used.
Fortunately, technologies in commercial operation today demonstrate
it is feasible to capture CO<INF>2</INF> from coal-based power plants
in a form that can be kept out of the atmosphere provided that suitable
geologic repositories are developed. As I mentioned in my June 2002
testimony to the full committee, in the U.S. today we inject over 30
million tons of CO<INF>2</INF> annually into oil fiqelds to recover
additional oil. Yet, none of that CO<INF>2</INF> is supplied by power
plants. Rather it is pulled out of natural CO<INF>2</INF> reservoirs
and piped hundreds of miles to be stuck back in the ground.
Because industrial CO<INF>2</INF> can still be emitted to the air
in unlimited amounts for free, there is not an adequate economic
incentive to use and optimize existing technology to capture these
emissions. Nor is there an adequate incentive to invest to bring down
the costs of today's gasification and CO<INF>2</INF> capture systems.
Ironically, the current policy procrastination has made the U.S.
coal industry's posture a very uncertain one. No one believes that
action on global warming can be delayed indefinitely and this causes
investors to be leery of large new investments in conventional coal-
fired power plants. On the other hand, without a policy resolution,
setting forth a program to limit CO<INF>2</INF> emissions over time,
the uncertainty is too great for most investors to develop and plan to
deploy advanced coal technologies like gasification and capture
systems.
In sum, failure to include CO<INF>2</INF> limits in a power plant
bill has real costs. It would keep the U.S. and the world on a path of
accelerating CO<INF>2</INF> emissions a path that is unacceptably risky
given what we already know about the potential of global warming to
change our lives for the worse. It would steer investments at the
margin to patching up old, existing capacity that should be replaced
with modern, efficient systems. And it would continue the policy
uncertainty that operates as an obstacle today to business planners
considering what energy investments they should pursue.
The good news is that by acting now to adopt a schedule for
limiting CO<INF>2</INF> emissions we can change behavior and make it
easier to address global warming. For example, the International Energy
Agency forecasts that nearly the world will build new coal plants equal
to nearly five times the current U.S. coal plant capacity between now
and 2030.\67\ While seemingly a daunting prospect, this projection
really means that two out of every three coal power plants forecasted
to be operating in 2030 are not yet designed or built. With U.S.
leadership, we can design new energy projects to rely on climate-
friendly technology. Doing so will expand our options to reconcile
aspirations for improved economic well-being around the world while
preserving the climate we all depend on to provide us with a hospitable
place to live.
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\67\IEA, World Energy Outlook 2002, October 2002.
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
figure 9\68\
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\68\GW=gigawatt, which is 1000 MW of capacity. Current U.S. coal
capacity is just over 300 GW.
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In conclusion, let me suggest it is time for all sides to stand
down from the posturing of past years on this issue and adopt a more
pragmatic approach. There are many sensible policies that can be
adopted to start limiting CO<INF>2</INF> emissions and there are many
compelling reasons to do so. Working together, members of both parties
and the Administration would be able to identify a path forward that
all could embrace and all could point to as a real accomplishment. NRDC
will work with you to help make that happen.
__________
Statement of Eugene Trisko, United Mine Workers of America
Mr. Chairman and members of the committee: I am Eugene M. Trisko,
an attorney in the District of Columbia. I am pleased to be here today
to testify on behalf of the United Mine Workers of America (UMWA), the
labor union representing the nation's organized coal miners. I have
worked with the UMWA for some 20 years on issues related to the Clean
Air Act and global climate change, including the development and
implementation of the Clean Air Act Amendments of 1990, the Byrd-Hagel
climate resolution, and the proposed Clear Skies Act.
The UMWA supports additional reductions in sulfur dioxide
(SO<INF>2</INF>), nitrogen oxides (NOx) and mercury from coal-fired
power plants, provided that the reductions are achieved in a way that
preserves coal miners' jobs. UMWA members mine, process and transport
coal in their daily jobs. Their economic interests are entwined with
energy and environmental issues in a very direct manner.
Since 1990, the UMWA has lost thousands of coal mining jobs as a
consequence of fuel-switching in response to the acid rain provisions
of Title IV. Coal production in major eastern coal producing States
declined by more than 113 million annual tons between 1990 and 2000,
while more than 30,000 coal mining jobs were lost. Most of these
reductions and job losses were the result of switching from higher-to
lower-sulfur coals to meet the emission reductions required by Title
IV. Dozens of mining communities have all but ceased to exist across
economically depressed Appalachia and the rural Midwest. The union is
understandably sensitive to the risk of additional job losses through
new multi-emission legislation.
For these reasons, the UMWA appreciates the concerns that the
Administration has expressed toward its members' interests in the
development of the proposed Clear Skies Act, and is gratified that the
proposal reflects UMWA's suggestions about the need for incentives to
encourage the early installation of control technologies. Our statement
today is intended to point out some remaining concerns about the design
of multi-emission legislation.
Background: The Role of Coal in America's Energy Supply
Coal is an indispensable part of America's energy supply. The U.S.
has a demonstrated coal reserve base of over 500 billion tons, with an
estimated 275 billion tons of recoverable reserves. At current
production rates, this represents about 275 years of recoverable
reserves.
Coal represents some 95 percent of all U.S. fossil fuel energy
reserves. About one-quarter of global known coal reserves are found in
the United States. U.S. recoverable coal reserves have the energy
equivalent of about one trillion barrels of oil, an amount comparable
to the world=s known oil reserves.
More than one-half of our nation's electricity is generated by
coal. To back coal out of our energy supply mix means that we would
have to find another fuel to replace it, most likely natural gas. Such
a fundamental shift in U.S. energy policy would bring into question not
only the cost but also the availability of natural gas supplies.
Substantial increases in demand for natural gas inevitably would lead
to higher costs and greater dependence on foreign sources for supply.
At the margin, our gas supplies are imported from Canada and other
sources in the form of LNG.
Natural gas futures prices now exceed $4 per million BTU at the
wellhead, and persist at that level for contract purchases several
years into the future. Gas prices exceeded $10 per million BTU in many
markets this winter. Environmental policies that drive electric
utilities away from coal which costs about $1 per million BTU at the
mine--and toward natural gas conflict with our energy policy goals of
maintaining a reliable, low-cost mix of generating sources.
The UMWA also recognizes that Americans demand a cleaner
environment at the same time they demand low-cost, reliable and
available energy. For coal to continue to play the vital role that it
can and should play in our energy mix, we must ensure that coal is
consumed with minimum emissions consistent with the use of available
technologies. The United States must continue to develop highly
advanced technologies to convert coal to a cleaner and more efficient
form of energy.
The UMWA Supports a Three-Pollutant Approach
The UMWA supports in principle the emission reduction tonnage
targets contained in the proposed Clear Skies Act. The UMWA has some
suggested changes intended to improve the environmental effectiveness
of the proposal, while reducing the risk of large-scale, disruptive
fuel-switching.
The union consulted with the Administration during the development
of the Clear Skies Act. UMWA engaged this issue in August 2001 in
response to the release of EPA's initial ``strawman'' proposal, calling
for, inter alia, a 2.0 million ton cap on sulfur dioxide emissions to
be achieved by 2010. Through a process of inter-agency negotiations,
that proposal was modified to a two-phase program with a 3.0 million
ton final cap. The UMWA supported the 3.0 million ton final cap, but
argued for a single-phase program.
The positions that UMWA has taken on the Clear Skies Act can be
summarized as follows:
1) A single phase approach to reducing SO<INF>2</INF> emissions can
be developed in a manner that reduces the risk of fuel-switching by
encouraging extensive use of available emission control technologies,
thereby maximizing the ``co-benefits'' of mercury reductions;
2) Two-phase proposals for SO<INF>2</INF> control may encourage
fuel-switching and resulting job losses, while reducing the use of
control technologies that also achieve mercury reductions;
3) A 2.0 million ton cap on SO<INF>2</INF> emissions is excessively
stringent and could lead to the shut-down of smaller units forced to
install emission controls;
4) Differentiating NOx control requirements between eastern and
western States makes sense in light of OTAG modeling results showing
the minor contribution of western NOx emissions to ozone affecting
eastern States; and
5) An initial target for mercury reductions should be set based on
expected ``co-benefit'' reductions from a single-phase SO<INF>2</INF>/
NOx control program, with a subsequent target based on the results of
these reductions, and advances in available mercury control
technologies.
In November 2001, UMWA President Cecil E. Roberts testified before
this committee:
``An SO<INF>2</INF> and NOx control plan along these lines could be
implemented as a first step in a longer-range plan to reduce mercury
emissions. The experience in mercury ``co-benefits'' achieved by the
first phase controls for SO<INF>2</INF> and NOx emissions would be
vital in assessing the feasibility of ultimate mercury reduction
targets. In light of this, the committee may want to consider early
reduction allowances for SO<INF>2</INF> controls that also reduce
mercury emissions on the theory that such reductions are more valuable
than those strategies that only reduce SO<INF>2</INF> alone. There is
precedent for such extra credit in Title IV of the 1990 Amendments,
which allocated 2:1 bonus allowances to utilities that chose to install
control technology.''
With this background, the UMWA respectfully requests the committee
to consider constraining the eastern SO<INF>2</INF> reductions called
for by the Clear Skies Act to a single phase control program with a
reasonable final deadline, perhaps similar to the 10-year deadline
provided by the Title IV SO<INF>2</INF> control program.
A single-phase SO<INF>2</INF> program would serve to maximize the
use of emission control technologies such as flue gas scrubbers that
also reduce mercury. More important, emission reductions would be
achieved in time to assist States in attaining the new PM<INF>2.5</INF>
standard. A longer-term, two-phase program may not deliver sufficient
reductions in time for States to demonstrate attainment by the expected
2015 attainment deadline.
Because NOx controls tend to be added incrementally, from low-NOx
burners to selective catalytic reduction, there is less need for a
single-phase NOx control program. The targets and timetables for NOx
reductions also may take into account the longer-term attainment
schedule for the 8-hour ozone standard that EPA is developing, modeled
on the 17-year schedule that Congress approved for the 1-hour ozone
standard.
Eliminate Allowance Auctions
The UMWA urges elimination of the emission auction provisions of
the Clear Skies Act. Requiring sources both to reduce emissions and to
pay for auctioned allowances is a form of double taxation whose rates
rise in relation to the sulfur content of coal. Auction ``tax rates''
would be highest in West Virginia, Pennsylvania, Ohio, Kentucky,
Indiana, Illinois and other States producing higher-sulfur coals. Over
time, this new energy tax would create a major disincentive to the use
of coal reserves in these States.
Avoid Entanglement with Climate Issues!
The UMWA does not support reduction schemes that force or encourage
electric utilities to switch away from coal, thereby causing economic
harm to coal miners and their communities. UMWA is particularly
concerned that efforts to craft new multi-emission control legislation
should remain focused as the Clear Skies Act is--on reducing the air
pollutants contributing to air quality problems such as nonattainment
with EPA's new 8-hour ozone and PM<INF>2.5</INF> standards.
The union is strongly opposed to efforts to use the Clean Air Act
as a vehicle for regulating greenhouse gas emissions.
Regulating greenhouse gases under the air quality framework of the
Clean Air Act is not feasible. It is not possible to set enforceable
limits on domestic atmospheric concentrations of greenhouse gases
generated and transported globally. Carbon dioxide, the principal
greenhouse gas, is not harmful to human health and could not properly
be classified as a ``criteria'' air pollutant.
There are no commercially available means to reduce carbon
emissions from the electric generation sector. Limits on carbon
emissions would require switching from coal to natural gas or other
higher-cost energy sources, with potentially devastating impacts on the
economies of coal-producing States.
The Kyoto Protocol exempts rapidly growing developing nations from
limits on greenhouse gas emissions, and unilateral actions by the
United States to reduce carbon emissions would have no measurable
impact on future concentrations of greenhouse gases. Global greenhouse
gas concentrations are projected to increase into the foreseeable
future, irrespective of ratification and implementation of the Kyoto
Protocol. These increases will be driven predominately by the economic
growth of developing nations.
The U.N. Framework Convention on Climate Change calls for the
United States and other parties to establish global atmospheric
greenhouse concentration targets to prevent ``dangerous'' anthropogenic
interference with climate. To date, the U.N. FCCC process has failed to
engage this debate. Indeed, the FCCC's ``second review of adequacy of
commitments'' has been stalled since November 1998 when China and other
developing nations refused to discuss the adequacy of developing
country commitments. In Kyoto, developing countries staged a 6-hour
filibuster against the U.S. ``evolution'' proposal, calling for
subsequent negotiation of developing country commitments. These
subsequent negotiations were contingent upon full and complete
performance of all Annex I country obligations under the Kyoto
Protocol.
The deficiencies of the Kyoto Protocol and the U.N. FCCC process
should be resolved through multilateral negotiations involving
developed and developing countries, potentially leading to a new global
agreement on greenhouse gases that recognizes the ``common but
differentiated'' responsibilities of parties to the FCCC, with an
equitable apportionment of emission limitation targets among all
parties.
The UMWA's concerns about including greenhouse gas emission
restrictions within domestic Clean Air legislation are shared by other
labor unions. On October 24, 2001, the presidents of seven labor unions
conveyed their views on this issue to this committee. A copy of their
letter is attached to this statement.
Need to Consider Financial Impacts
The failure of many State utility restructuring efforts and other
economic forces have degraded the financial health of the electric
utility industry. The industry is littered with companies in or
teetering on the edge of bankruptcy. Credit downgrades are daily news.
The multi-billion dollar annual cost associated with new emission
control legislation raises questions about the ability of the utility
industry to raise needed debt and equity capital. In many States, it is
no longer possible to simply pass through the costs of new emission
controls to utility ratepayers.
Under these circumstances, UMWA recommends that the committee
consult with the congressional Research Service or the General
Accounting Office on the financial implications of proposed emission
control legislation. Both the tonnage reductions and the timetables for
compliance should reflect sound financial and economic assumptions
about the ability of the industry to comply.
UMWA appreciates the opportunity to share its views on the proposed
Clear Skies Act with the committee, and looks forward to the
opportunity for further input to the development of multi-emission
legislation as your deliberations proceed.
Thank you.
______
Responses of Eugene Trisko to Additional Questions from Senator
Voinovich
Question 1. Obviously, fuel switching is an issue that is important
to you--as your members will be forced out of their jobs if utilities
switch to natural gas as their primary fuel for electricity generation.
How does Clear Skies affect your industry?
Response. EPA's current analyses of Clear Skies show relatively
little overall impact on domestic coal production compared to EPA's
base case business-as-usual scenario, with a slight shift from western
to eastern bituminous coals by 2020. For reference, see Jeff
Holmstead's recent article in Electric Perspectives at: http://
www.eei.org/ep/editorial/May--03/0503ClearSkies.htm
This shift reflects the increased use of control technologies
needed to meet CSA emission targets, and the relative ease of removing
mercury from high-chlorine content eastern coals.
UMWA has been advised by EPA staff that the main risks of fuel
switching under Clear Skies would exist in the early years of the
program, following enactment. Utilities would be able to bank
SO<INF>2</INF> allowances against future reduction requirements, and
would have a strong incentive to switch to lower-sulfur western coals
in order to reduce their current emissions.
Many subbituminous western coals have emission rates of 0.6-1.0 lb
SO<INF>2</INF>/MMBTU, while there are virtually no eastern coals with a
sulfur content less than 1.0 lb. SO<INF>2</INF>. The lower the sulfur
content of the coal feed, the larger the number of allowances that can
be banked relative to the nominal 1.2 lb. allocation formula employed
in Title IV, Phase II.
These considerations led UMWA to propose a system of early
reduction bonus allowances in Clear Skies, similar to the ``Byrd-Bond''
amendment to Title IV, which the bill now incorporates. CSA provides
250,000 tons of SO<INF>2</INF> allowances as a set aside for plants
that install scrubbers prior to the initial 2010 Phase I cap.
UMWA's initial proposal for this early action program was 500,000
tons of allowances in each of the years 2007, 2008 and 2009. Any
increase in the 250,000 ton early action reserve would be helpful in
encouraging the early use of control technologies that reduce
SO<INF>2</INF> as well as mercury as a cobenefit.
The risk of early fuel switching also underlies UMWA's proposal for
a single phase SO<INF>2</INF> control program, as explained in my
direct testimony. Such a program would create incentives for early
scrubbing to reduce both SO<INF>2</INF> and mercury, and minimize the
risks of short-term fuel switching that would not be consistent with
preservation of eastern coal mining production capacity.
Question 2. Is Clear Skies better for your industry in the long run
than other alternatives--including business as usual, the Clean Power
Act (S. 366) and the Clean Air Planning Act (S. 3135)?
Response. Clear Skies is significantly more favorable to coal
production and consumption in the long-run than either S. 366 or S.
3135. The principal reason for this is that these alternatives include
requirements for carbon emission reductions, which would serve as an
impediment to coal use.
For the reasons set forth in my direct testimony, UMWA would not
support an amendment to the Clean Air Act including carbon dioxide
limits on coal power plants. The international climate change process
must first be redirected to embrace all major greenhouse gas emitting
nations. Unilateral actions by the U.S. would have no meaningful impact
on global concentrations of greenhouse gases, and could impose
unacceptable economic hardships on coal producing and consuming States.
Further, as stated in response to the Committee's hearing
questions, UMWA welcomes analyses by EPA, EIA or other agencies of the
potential fuel market impacts of alternative bills before the
Committee.
______
Responses of Eugene Trisko to Additional Questions from Senator
Jeffords
Question 1. As it has been explained to me, the future for new coal
generation and consumption in the next 20 years or so is pretty dim.
According to EIA, most new capacity is going to be natural gas, unless
we quickly bring in coal gasification technology. What are the
projections for employment in the coal mining field over the next 10
years or so, if cleaner, more efficient coal fired generation is not
installed within that period?
Response. EPA and DOE projections for coal mining employment show a
general downward trend, reflecting increased productivity. This is a
continuation of an historic trend based on increased mechanization at
mines. EPA's projections of mining employment for Clear Skies may be
referenced at: http://www.epa.gov/air/clearskies/tech--sectiond.pdf
EPA's analysis suggests a small positive increase in coal jobs
(900-1,400) due to Clear Skies relative to the reference case in 2005
and 2020. This is mainly due to increased production in the Midwest.
EIA's projections of future natural gas capacity additions may not
be realistic in view of recent increases in the wellhead price of gas,
and poor experience in finding rates for new gas. A business as usual
scenario for coal over the next 10 years reflecting realistic gas price
assumptions likely would indicate substantial increases in generation
from existing plants, especially those with relatively low capacity
factors, in order to supply increased electric demand. This would imply
a beneficial impact on coal mining jobs.
Question 2. Do you believe that the current statutory language or
the consent decree regarding the MACT requirements for hazardous air
pollutants could result in a rule that controls mercury only at the co-
benefit level--in the 40-50 percent range per unit?
Response. The statutory language of section 112 will control EPA's
determination of an appropriate MACT for coal-fired units. The consent
decree impacts only the timing of the proposal and its promulgation as
a final rule. The MACT may subcategorize by coal type, and under
applicable precedent should reflect consideration of worst case
operating conditions.
It is UMWA's understanding that the ICR data collected by EPA can
be interpreted to support a MACT that is consistent with a cobenefit
level of reduction. The MACT determination under section 112 looks at
the performance of the top 12 percent of units, based on controls
actually in use. It is unlike a section 111 NSPS determination, which
considers what may reasonably be anticipated as state-of-the-art
control technology.
Thus, in determining MACT, EPA may not consider the effectiveness
of activated carbon injection and other emerging mercury control
technologies that are not in actual commercial use. Instead, the agency
must focus on the effectiveness of controls in place among its ICR
sample of 80 plants.
Because these controls remove mercury as a co-benefit of other
emission control technologies for SO<INF>2</INF>, NOx and particulates,
it is reasonable to expect that EPA's MACT proposal(s) should be
consistent with a cobenefit level of mercury reduction.
__________
Statement of Bernard Melewski, Adirondack Council
Good Morning. My name is Bernard Melewski. I am the Deputy Director
and Counsel of the Adirondack Council. I would like to thank the
chairman, and the Members of the committee for the opportunity to be
here with you this morning and to provide testimony regarding Senate
Bill 485-the Clear Skies Act.
The Adirondack Park is the largest park of any kind in the
contiguous United States. It is nearly three times the size of
Yellowstone National Park and covers one fifth of the State of New
York, making it equal in size to the State of Vermont. The Adirondack
Park is roughly six-million acres of public and private land containing
the largest assemblage of old growth forest east of the Mississippi
River. The Adirondacks include the headwaters of five major drainage
basins. Lake Champlain and the Hudson, St. Lawrence, Mohawk and Black
rivers all draw water from the Adirondack Park. Within the Park are
more than 2,800 lakes and ponds, and more than 1,500 miles of rivers
fed by an estimated 30,000 miles of brooks and streams. The Park
contains 46 mountain peaks more than 4,000 feet in elevation. Forty-
five percent of the Park is publicly owned Forest Preserve protected as
``Forever Wild'' by the New York State Constitution since 1895. One
million acres of these public lands are further protected as
Wilderness.
The Adirondack Council was founded in 1975. It is a private, not-
for-profit organization dedicated to enhancing the natural and human
communities of the Adirondack Park through research, education,
advocacy and legal action. We receive no Federal or State funding.
Our interest in The Clean Air Act and the problem of acid rain is
long held. We helped craft the first acid rain law in the country which
was adopted in 1984. The New York law identified both sulfur dioxide
and nitrogen oxide as precursors to acid rain, sought limits on total
emissions from power plants within the State and even proposed an
innovative trading mechanism that Congress adopted nationwide in the
Clean Air Act Amendments of 1990.
The Adirondack Council was also an active participant in the
national debate that led to the adoption of the acid rain program in
Title IV of the Clean Air Act Amendments of 1990. Our publication,
``Beside the Stilled Waters,'' which was produced and distributed in
cooperation with our member organizations, brought the problem of acid
rain to the attention of the Nation and to Congress. (See Also ``Acid
Rain and the Adirondacks: A Legislative History.'' Albany Law Review.
Vol 66 Number 1 2002)
The acid rain program, as adopted, was not without controversy.
Congress adopted an innovative ``cap and trade'' program, modeled after
the New York legislation, which would abandon the so-called ``command
and control'' approach to regulation, in favor of a free wheeling
pollution allowance trading program that would provide utilities with
the flexibility to make compliance strategies part of their long-term
business planning. The Adirondack Council, among others raised concern
that the cap on total emissions might not be low enough to protect
sensitive areas. Others debated both the need for and the cost of the
program
The Adirondack Council was also one of the most severe critics of
the program EPA designed to implement Title IV. We had concerns about
the initial allocation of credits, the adequacy of the continuous
monitoring systems, and, together with the Natural Resources Defense
Council sought changes in Federal court. (Cases consolidated under EPA
v. Browner) We are pleased to say that years of good-faith negotiation
between the USEPA, the affected industry and the conservation community
resulted in very positive changes. Unfortunately, EPA now administers
an efficient mechanism that will accomplish a goal that, in hindsight,
was too modest.
In 1992, a deputy administrator for the EPA grandly pronounced in a
press release that the regulations implementing the new Clean Air Act
Amendments would mean ``the end to acid rain in the Adirondacks.''
Certainly that was the intention of the Senate and the House. But
wisely, Congress had ordered a series of reports that would advise the
members of the success or failure of the goals of the acid rain
program.
Sadly the news has nearly all been bad.
Due to its location and its thin soils, the Adirondack Park has
suffered the worst environmental damage from acid rain in America. It
is the region where the problem was first documented in the United
States. Prevailing winds carry power plant emissions from the Ohio
Valley into the Adirondack Mountains, where they fall as acid rain,
acid snow, acid fog and dry acidic particles. The acidity alters soil
chemistry, inhibits plant growth and releases heavy metals that are
toxic to plants, animals and fish.
Reports conducted by a host of Federal agencies have shown that
more than 500 of the Park's 2800 lakes and ponds have become too acidic
to support their native life over the past 40 years. The same is true
for 28 percent of the Park's 2,000 miles of navigable rivers. Each
spring the percentage of acidic rivers explodes to almost 60 percent
over the course of several weeks as the winter's acidic snowpack melts.
The Park's high elevation spruce and fir and its spectacular maples,
are disappearing at an alarming rate. Similar damage to forests is
worsening across the East Coast, as well as the Colorado Rockies and
the coastal mountains of California.
Every report issued by the Federal Government in the past 10 years
reflects these observations, and worse, predicts continuing damage if
more is not done to control power plant emissions. The dire predictions
are also reflected in a host of other reports from scientists in the
field which we discuss later in this testimony.
In 1998, the Adirondack Council was invited by this committee to
testify about Senate 172, the Acid Rain Control Act, proposed
legislation then sponsored by the late Senator Patrick Moynihan. We
said at that time that any legislation that seeks to address the acid
rain problem should, at a minimum contain two provisions. The same
holds true today:
<bullet> Build on the successful sulfur dioxide cap-and-trade
program by creating a third phase of reductions further along the
current time line. All of the advantages of the current program can be
preserved in a predictable, flexible, and cost-effective manner while
reducing sulfur-dioxide emissions by an additional 50 percent or more.
<bullet> Create a new year-round cap-and-trade program for
nitrogen-oxide emissions from utility smokestacks that mirrors the
successful program already in place for sulfur. The role of nitrogen
deposition both in high elevation waters and forests and in our coastal
estuaries is now much better understood and accepted by the scientific
community. This cap and trade program should reduce nitrogen emissions
from utilities nationwide by approximately 70 percent or more of 1990
levels, resulting in a substantial and beneficial cut that is also
reasonably achievable.
It is our conclusion that the bill before you now, Senate 485, the
Clear Skies Act, meets and exceeds those two minimum provisions. The
bill embraces the cuts envisioned in the Moynihan-D'Amato-Schumer-
Clinton proposals over the past several sessions of Congress and then
goes beyond those levels in an additional phase of reductions We
believe that adoption of the caps proposed for sulfur dioxide and
nitrogen oxide in the Clear Skies Act will set the course for recovery
of the Adirondacks, and the many other acid rain ravaged sections of
the country.
Just last week, final approval was granted for the State of New
York to adopt the toughest acid rain regulations in the country. The
New York initiative was announced by Governor Pataki 3 years ago, when
I last testified before this subcommittee. Senator Voinovich was
presiding that day. The Senator, upon hearing the news of the
announcement, said, as I recall, that it was an important step. That
New York had to show that it was willing to do what we were asking of
the rest of the country. Well Senator, it is done, and we are back. The
adoption of the regulations reaffirms once again New York's commitment
to this issue, despite the fact that more than 80 percent of our acid
deposition problem originates outside our borders. We are doing what we
can, but we need your help.
The Pataki rules are modeled to implement the provisions of the
Acid Deposition Control Act authored by the late Senator Moynihan in
1997, which was reintroduced in the last session of Congress by
Senators Schumer and Clinton. New York will require over the next
several years a 50 percent reduction from its power plants of sulfur
dioxide emissions and a 70 percent cut in emissions of nitrogen oxides
from current levels.
The new rules in New York raise an important issue that should be
considered as an amendment to the Clear Skies Act. New York is part of
the EPA brokered 22 State SIP Call compact that will reduce nitrogen
emissions significantly during the summer ozone season by 2004. Under
the new rules, however, New York power plants will be required to
implement year-round controls in 2004.
USEPA has established a 22-State utility cap-and-trade program for
nitrogen emissions as the preferred response for State compliance with
its new ozone program. The EPA SIP call, which is only summer seasonal,
will not address in a significant way, the acid rain problem. The acid
rain dilemma is the total loading of nitrogen to sensitive areas. For
high elevation areas the main concern stems from the buildup of
nitrogen in the snow pack and the subsequent ``acidic shock'' to
aquatic systems in the spring of the year. Year-round controls will be
necessary to address the nitrogen problem. Furthermore, only nationwide
reductions will address the problems outside of the 22-State region
covered by EPA's plan.
Congress can level the competitive playing field for the utility
industry by enacting national controls which will permit an expanded
allowance trading market that will be more efficient and cost
effective. The Congressional Budget Office, in its report, Factors
Affecting the Relative Success of EPA's Nox Cap-and-trade Program (June
1998), identified similar benefits to providing additional statutory
authority in a report on the proposed rules this summer.
The Clear Skies Act as currently drafted does not impose those
year-round controls until 2008 for the SIP Call States. The Adirondack
Council requests that the committee to take a look at whether the
imposition of year-round controls could be advanced for the States in
that eastern trading region.
The Adirondack Council would appreciate consideration of two other
amendments to the Clear Skies Act today as well. The second amendment
has already been considered once by this committee. In a mark-up of
then Chairman Jefford's bill last session, Senator Clinton offered up
an amendment which was adopted by the committee. The amendment was
similar to a provision of Senate 588 of last year, which would ensure
that measurements of water chemistry were conducted in acid sensitive
areas of the country. If by a date certain the benefits anticipated by
the legislation were not occurring in sensitive areas, the
Administrator would have the authority to reduce emissions from
contributing sources to reduce acid deposition in the affected area to
levels where the affected water bodies have the capacity to neutralize
acids sufficiently to avoid additional damage.
We have every reason to expect that, with the level of reductions
proposed in the Clear Skies Act, that such a provision might never need
be invoked. But we prefer a belt and suspenders in this case. Neither
our region of the country, nor any other that suffers from acid rain,
should need to wait another 12 years to solve this problem. We urge you
to consider adding language that allows a limited reopener by the
Administrator to protect sensitive resource areas. We appreciate that
Senator Jeffords has retained the provision in the reintroduction of
his bill this session.
Our third request is that the committee examine whether there can
be faster timetables, especially in the out years for the second phases
of SOx and NOx reductions. One of the remarkable aspects of the 1990
Amendments was that the industry was able to fully comply with two
phases of sulfur dioxide reductions only 5 years apart. New York is
requiring our power plants to implement year-round reductions of
nitrogen oxides very rapidly. While we concede that our generators had
a very public ``notice'' 3 years prior, the committee should examine
whether a more ambitious timetable can be accomplished in the out
years. The faster we lower emissions, the quicker we will see recovery.
There are many issues ahead to resolve, including the timing and
depth of the reductions in emissions of the target pollutants. We
encourage you to adopt the deepest cuts in the faster manner that can
be accomplished in negotiations with your colleagues. We are excited by
the fact that this bill which you sponsor, Mr. Chairman, and that of
Senator Jeffords and the bill anticipated from Senators Carper and
Chafee all will solve the acid rain problem. Every year that can be
gained and every ton that can be saved will hasten the biological
recovery of our parks, our rivers and our coastal estuaries, and will
save thousands of lives.
Last spring, President George W. Bush visited the Adirondack Park
on Earth Day. He said he was committed to solving our acid rain problem
and we believe him. We were pleased to see the President chose the
solemn occasion of the State of the Union message to renew that
commitment. The introduction by the leadership of this committee of the
Administration's proposal is an important step forward. The Clear Skies
Act is a good point at which to begin your deliberations Congress now
has the historic opportunity to stop acid rain, smog and haze from
harming our environment and our health.
I want to extend at this time, on behalf of the Board of Directors
of the Adirondack Council, an invitation to all the members of this
committee to visit the Adirondack Park and see what a wonderful
resource you will have saved. Perhaps, you will hear the haunting call
of the loon in the wilderness and know that you have acted to ensure
that future generations will share the experience.
This nation committed itself to the task of ending the destruction
of acid rain over a decade ago. We think it is time to finish the job.
We urge the earliest consideration of measures to improve Title IV of
the Clean Air Act and bring an end to acid rain this year.. Thank you
again.
Reports to Congress have shown the need for more cuts in emissions
The first report was due in 1993, from the USEPA (ordered under
sec. 404, Title IV appendix B of the 1990 CAAA). Entitled the Acid
Deposition Standard Feasibility Study Report to Congress, the report
(dated October 1995) was finally released in 1996 under the threat of
litigation from the Adirondack Council and the State of New York.
The report concluded that the pollution reductions accompanying the
1990 Clean Air Act Amendments would not be sufficient to allow recovery
of certain sensitive ecosystems and that some would continue to get
worse. The report was particularly compelling for New Yorkers because
it revealed that, despite the reductions expected from the 1990 CAA
Amendments, the loss of nearly fifty percent of its lakes and
acidification of most streams in the Adirondack Park could be expected.
The second of two reports to Congress, the Report of the National
Acid Precipitation Assessment Program, NAPAP Biennial Report to
Congress: An Integrated Assessment, was submitted to Congress during
the August recess in 1998 (ordered under Sec. 901J of the 1990 CAAA).
It was due in 1996 and it too was released under pressure from then
Senators Moynihan and D'Amato and the threat of litigation from the
State of New York. The NAPAP report confirmed and substantially
elaborated upon the findings of the earlier report to Congress
submitted in 1996 from the EPA.
We believe that a fair reading of both reports to Congress lead to
the same two findings:
First, the mechanism of a national cap in emissions coupled with
the pollution allowance trading program has been an outstanding
success. Facilities are in compliance with Title IV and on schedule.
The administrative and implementation costs of the program are less
than projected at the time of adoption. The simple, efficient design of
the program, coupled with large automatic penalties for exceedences,
and the diligence of EPA Administrators and the regulated community are
all factors in this success.
The administrative and implementation costs are far below those
associated with traditional regulatory approaches because in many ways
the program is self-implementing. Devices known as Continuous Emissions
Monitors (CEMS) count each ton of pollution as it is emitted from the
smokestack. At the end of each year a utility must have enough credits
(either initially allocated or purchased) to cover those emissions. The
accounting of allowance holdings and trading is in a data base
maintained by EPA. Each pollution credit is tracked with its own serial
number.
The compliance costs of the program are proving to be far below
those estimated when Title IV was adopted. EPA estimated that the fully
implemented program would cost four billion dollars a year, and
industry estimates were much higher. A report by the the Massachusetts
Institute of Technology found compliance costs of less than one billion
dollars per year. Again, the design of the program helped achieve these
relatively low compliance costs. Other factors, such as rail
transportation improvements that reduced the cost of transporting low-
sulfur coal were crucial here as well.
The market for trading allowances is improving as well. Each year
there are more ``economically significant'' trades occurring and the
value of each allowance is rising steadily. In fact, the Adirondack
Council is a market participant. We have acquired thousands of
pollution allowance credits, most of them donated as a community good-
will gesture by utilities in New York. Unlike most other holders of
allowances, it is our intention to retire all credits we may obtain by
transferring them to a retirement account we maintain with USEPA.
Thousands of individuals around the Nation, have ``Clean Air
Certificates'' on their home or office walls, assuring them that the
Adirondack Council has permanently retired, in their name, one-ton of
sulfur dioxide emissions.
There is a real need for emission reductions beyond those called
for in the 1990 Amendments. Projections (by EPA and ICF Resources) of
what new SO<INF>2</INF> and Nox reductions would cost indicate that
deep new reductions could be achieved at or near the initial four
billion dollar estimate made by the House and Senate in 1990.
The second major finding of both reports to Congress was that
despite the success of the regulatory scheme, the overall cap in
emissions is too high to accomplish one of the primary goals of
Congress, which was to protect sensitive resource areas from the
harmful effects of acid rain.
The NAPAP report also confirmed that acid rain is not just an
Adirondack problem.
Ecological damage is significant and widespread
The damage that sulfur and nitrogen pollution causes is far from a
regional issue. It is an issue of national importance. Excess nitrogen
in waters and in soils--``nitrogen saturation``--can be found in the
North East and in West Virginia's Allegheny Mountains, Tennessee's
Great Smoky Mountains, Colorado's Front Range of the Rockies and even
as far west as the San Bernardino and San Gabriel Mountains. High
levels of nitrogen deposition are causing nitrate to leach in stream
water from these watersheds. This nitrate leaching acidifies streams
and strips base cations from soils. In snow covered areas, the flush of
nitric acid stored in the snowpack is the leading cause of ``acid
pulses'' or ``spring shock'', which is responsible for fish kills
during spring thaws.
NAPAP found that high elevation areas in the Northeast and the
Appalachians are bathed in acidic cloud water for extended periods of
time. Sulfuric acid from sulfur dioxide emissions is the significant
cause of the widespread loss of red spruce trees in these areas. The
reason for the die back is the leaching of calcium from the spruce
needles and aluminum from the soils by the acidic fog which makes the
trees susceptible to frost and winter injury.
The coastal estuaries of the entire east coast suffer from airborne
inputs of nitrogen that can make up nearly 40 percent of the total
nitrogen loaded into their systems. In estuary systems such as the Long
Island Sound, Narragansett Bay, the Chesapeake Bay and Tampa Bay in
Florida, nitrogen-based pollution is overloading the water with
nutrients. This causes ``eutrophication,'' an overabundance of algae.
When algae dies and decays, it depletes the water of precious oxygen
needed by all aquatic animals. This condition is known as hypoxia.
Algae blooms are also associated with fin fish kills, shellfish kills
and human illness.
NAPAP also concluded that areas of the United States that are not
seeing damage now are likely to in the future, due to an effect known
as soil acidification. Over the long term, acidic deposition is slowly
leaching away key soil nutrients, like calcium and magnesium (known as
base cations) that are essential for plant growth. This nutrient
depletion is occurring in high-and mid-elevation forests in New
England, New York and the Southern Appalachians. NAPAP cited studies
which concluded that fifty-nine percent of the commercial pine forest
soil in all of the South East has low enough reserves of these
chemicals to warrant concern.
Acid deposition, whether from sulfur-or from nitrogen-based
pollution, not only leads to base depletion, but also results in the
release of toxic compounds from soils to living things. For example,
the release of aluminum from soils rapidly accelerates when pH drops
below 5. The release of aluminum interferes with plant biochemistry. It
is also the leading cause of fish mortality in affected lakes. In other
words, it is not only the acidity directly, but also the aluminum
toxicity that is responsible for the damage. This effect is very
widespread. NAPAP cited studies, conducted in the Shenandoah National
Park, show that fish species richness, population density, condition,
age distribution, size and survival rate were all reduced in streams no
longer able to neutralize acidity. Another NAPAP study of streams in
the Adirondacks, Catskills and Northern Appalachians in Pennsylvania
showed that episodic acidification ``acid pulses'' had long term
adverse effects on fish populations including significant fish
mortality.
Lake acidification, whether from sulfur or nitrogen is also clearly
implicated in the increase in mercury concentrations found in fish.
Acidity leads to greater conversion of mercury from its less toxic
elemental form to methyl mercury, which is much more toxic. Fish
consumption warnings due to mercury contamination are common in many
states and are on the rise. The bio-accumulation of mercury in some
species of fish in New York has reached levels that threaten our loon
population, which are dependent on the fish as a primary food source.
In dozens of lakes in the western mountains of the Adirondack Park and
in the Catskill Mountain reservoirs of New York City's water supply,
the levels of mercury in some fish species exceed that which is safe
for human consumption, and children and women of child-bearing age are
urged to avoid perch and bass altogether. The acid rain problem is now
a public health problem.
The cost to Americans from acid rain is not just the loss of
pristine lakes in one of its greatest parks, or the almost
imperceptible die out of sensitive species of trees, or even the haze
obscures the views of four national parks, it is also in the loss of
our great monuments, our collective tribute to our ideals and to those
who have come before us.
The Capitol building is crumbling. The corrosive effects of acid
rain are eating away at its marble and that of many of the great
monuments on the mall. The Lincoln memorial corrodes more every year.
So it is with buildings and monuments throughout the Capitol, so
numerous and so obvious that until recently you could purchase an
illustrated guide to the acid rain damage to our nations capitol,
thoughtfully provided free of charge to the public by the U.S. Park
Service. (Acid Rain and our Nation's Capital, U.S. Dept. of the
Interior/U.S. Geological Survey, 1997)
The monuments to the fallen on the great battle sites of the Civil
War, Gettysburg and Vicksburg, are dissolving from the acid bath they
endure each rainy day. The Statute of Liberty stands melting on its
solitary island.
This is why the fight to stop acid rain has been joined by many of
the nation's prestigious organizations dedicated to historic
preservation, such as the National Trust For Historic Preservation and
the ``Save Our Sculpture'' Project of the Smithsonian.
All of this disturbing information was been exhaustively peer
reviewed and verified by the May 1998 National Acid Precipitation
Assessment Program Biennial Report to Congress.
Other studies have found similar results.
Environment Canada, in its 1997 report ``Toward a National Acid
Rain Strategy'', said that reducing sulfur emissions significantly
beyond the current Clean Air Act requirements in both countries would
be needed for all of eastern Canada to be protected from acid rain. In
southern Canada, an area the size of France and Britain combined
continues to receive harmful levels of acid deposition. As many as
95,000 lakes in the region will remain damaged.
A study released by Trout Unlimited in 1998, that was conducted by
the University of Virginia found that without deep additional
deposition reductions up to 35 percent of Virginia trout streams would
become ``chronically acidic'' and would no longer support trout
populations. The study further estimated that thousands of trout stream
miles in the Southern Appalachians may be lost to acidification.
While we hold no special expertise in the field of the health
effects of air pollution, a brief review of the literature reveals some
interesting facts. EPA's 1995 study, Human Health Benefits from Sulfate
Reductions Under Title IV, estimates that every dollar spent reducing
SO<INF>2</INF> emissions could generate ten dollars in savings from
reduced health care costs. Considering the steep rise in asthma cases,
acting to reduce air pollutants now is an important health initiative.
In 1999, Nature, perhaps the most respected journal of its kind,
published the broadest geographical study of acid rain to date. Written
by 23 scientists, all of them top acid rain researchers, and taking
samples from roughly 200 sites, the study again confirmed and
elaborated on the disturbing findings of earlier works.
Unfortunately, the next scheduled report by NAPAP to Congress is
again 2 years overdue. It is easy to predict that its findings will
only stimulate more demand for action by Congress on acid rain. Several
studies released since that time only reinforce the desirability of
moving ahead.
In May of 2000, the Ecological Society of America released it
workshop report from its 1999 conference of 50 of North America's top
research scientists. The report States that parts of New Hampshire,
Maine and California were suffering lake acidification and forest death
as severe as those observed in New York's most sensitive areas. Major
findings of the report included:
<bullet> More cuts are needed in sulfur dioxide and nitrogen
oxides to protect sensitive areas of the country from environmental
damage;
<bullet> The White Mountains of New Hampshire and the lake country
of Maine were showing little or no recovery;
<bullet> Nitrogen oxides can be equal in destructive power to
sulfur dioxides;
<bullet> Nitrogen saturation, already begun in the Adirondacks, is
actually worse in the San Gabriel and San Bernardino Mountains of
southern California, which had the highest concentrations of nitrogen
in North America;
<bullet> Acid shock is more widespread than previously believed;
and
<bullet> It is very important to continue the long-term research
into the effects of acid rain, including studies of cloud water, dust
particles, rain, sleet and snow.
At the beginning of the last session of Congress, the Hubbard Brook
Research Foundation released a new summary report, Acid Rain Revisited
of its findings of the scientific advances since the 1990 Clean Air Act
Amendments. The report's main conclusions are that our soil problems
are getting worse and the forests are dying faster than we thought. The
Hubbard Brook study is one more brick in a huge wall of evidence that
acid rain must be stopped as soon as possible.
Briefly stated, the findings include:
<bullet> Acid rain is still a problem and has a greater
environmental impact that previously projected;
<bullet> Acid deposition has altered soils and stressed trees in
areas of the Northeast and has impaired lakes and streams;
<bullet> The Clean Air Act has had positive effects, but emissions
and deposition remain high compared to background conditions; and
<bullet> The rate and extent of ecosystem recovery from acid
deposition are directly related to the timing and degree of emission
reductions.
And in January of 2003, the US Environmental Protection Agency's
Office of Research Development issued a report showing that the cuts in
air pollution since 1990 have produced corresponding modest-but--
encouraging improvements in concentrations in lake water across the
Northeast, including the regions's hardest-hit area, the Adirondack
Park. The good news from that report is that we have been taking the
right approach by reducing sulfur dioxide and nitrogen oxide emissions
from power plants. We are targeting the right sources and the right
pollutants. Our natural ecosystems are beginning to show signs of
chemical recovery, but is a long road from the start of chemical
recovery to full biological recovery-the point where you see the fish,
trees, and other native species coming back in healthy numbers. We need
to continue down this road and act this year to make significant new
cuts that will not only turn the corner but also accelerate the natural
healing process.
The call for additional action on acid rain is not just a New York
plea.
The problems these pollutants bring are felt from Maine to Florida
and beyond. The actions we call for will improve the environment and
public health to the benefit of virtually every American.
In May 1998, the Conference of New England Governors and Eastern
Canadian Premiers recommended additional reductions in utility
emissions of SO<INF>2</INF> and NOx, similar to the provisions of the
Moynihan legislation.
In August of 2002, the unanimous report of the Southern Appalachian
Mountains Initiative, released by representatives of eight southern
States (North Carolina, South Carolina, Kentucky, Virginia, West
Virginia, Tennessee, Georgia and Alabama), concluded that its mission
cannot be accomplished without emissions reductions in States outside
the region. The final report also States that ``The SAMI States support
and will promote national multi-pollutant legislation for electric
utility plants to assure significant sulfur dioxide and nitrogen oxide
reductions, both inside and outside the SAMI region. This national
multi-pollutant legislation should result in no less than the
reductions for sulfur dioxide and nitrogen oxides represented by the
Administration's Clear Skies Initiative''. We concur. congressional
action is the best solution
The sad alternative of more delay is continued destruction of the
nations most pristine resources and treasured monuments. The failure to
act now will also heighten the desire to find alternative, and more
confrontational, routes to stop acid rain.
The disturbing and overwhelming evidence of the destruction of the
streams, lakes and forests on public lands, protected by New York's
State Constitution as ``Forever Wild'' and the pollution of our coastal
estuaries has raised grave concern in New York. Absent clear movement
by Congress to adjust the sulfur program and deal with the companion
problem of nitrogen as long-range transport of pollutants, there have
already been numerous efforts in New York to mitigate the problem
through any other avenue available. In the past several years, the
Office of the Attorney General of the State of New York has sought
legal redress via other provisions of the Clean Air Act. Most recently,
Attorney General Eliot Spitzer has brought suit against 17 utilities in
five States, using the long arm of the Clean Air Act to force change.
In 2000, New York's State Senate passed unanimously a bill that is
intended to discourage the trade or sale of excess pollution allowances
that our own utilities may own for the eventual use in 12 upwind
States. I assure you, the New York State Senate is not known for its
hostility to business or to the free market. The State Senate action,
we believe, reflects a consensus that something must be done. The State
Assembly did adopt the same measure, which was signed into law that
year. Not surprisingly, a coalition of utilities challenged the measure
on constitutional grounds, winning at the Federal district court level.
The lower court decision is currently under appeal by the State, where
an opinion is pending. (See Clean Air Markets Group, 194 F.Supp. 2d.147
NDNY 2002)
We believe that the greater the delay in action by Congress to
repair the flaw in the acid rain program, the more likely that you will
see actions like those just mentioned in New York taken in other
affected States. The better alternative is to fulfill the original
intent of Congress to solve the acid rain problem by taking action
soon.
______
Responses of Bernard Melewski to Additional Questions from Senator
Jeffords
Question 1. The Hubbard Brook Research Foundation, the preeminent
institution for the study of acid rain, has said that cuts in sulfur
dioxide of at least 80 percent beyond phase II (that's down to about
1.8 million tons) will be necessary if we are to see biological
recovery in the lakes and streams of the Adirondacks by mid-century.
You probably know that Clear Skies stays above that level, at the 3
million ton level, until at least 2061. Is that acceptable to your
members?
Response. Our members are interested in stopping the damage from
acid rain as soon as possible. We would prefer an elimination of all
power plant emissions upwind of the Adirondacks. Reductions of an
additional fifty percent in emissions of acid rain precursors from
power plants, which is the minimum that needs to be done, has been
proposed in Congress virtually every year since the passage of the 1990
Clean Air Act Amendments without success.
The Hubbard Brook Foundation report is not a revelation to
scientists in the field, but is a logical outcome. The faster we cut
emissions and the deeper the cuts the more rapid the chemical change
and then biological recovery. Thus an 80 percent reduction promotes
full recovery at a faster rate than a 50 percent reduction.
Recent studies published by the USEPA and others provide scientific
certainty that Congress targeted the correct pollutants from the
appropriate sources in enacting Title Four of the Clean Air Act
Amendments of 1990. Signs of chemical recovery are there in the waters
of the Adirondacks ans elsewhere. But more must be done and soon.
But every year of delay means more damage to sensitive areas like
the Adirondack Park. That is why our testimony puts emphasis on the
need to reach agreement on the fastest timetable with the deepest cuts
that can move out of Committee and pass the Senate this year.
Question 2. EPA's climate assessment work indicates that virtually
all brook and brown trout habitat, as well as fifty to seventy percent
of maple forests, could be lost throughout New York due to global
warming. And, as a result, the character of heavily visited areas like
the Adirondacks may change. Do you believe that there is a significant
risk of substantial ecological and economic harm facing the Adirondacks
due to global warming?
Response. The Adirondack Council, in the fall of 2002, held a major
conference entitled AClimate Change and the Future of the Adirondacks.@
The conference reaffirmed that climate change is real and could
eventually have profound impacts on the natural resources, weather
patterns and tourism industry within the Adirondack Park.
As we testified, the Adirondack Council is supportive of the
addition of provisions on climate change in any bill that the Committee
and the full Senate may choose to advance. There are a number of
proposals from mandatory controls to phased decreases in carbon dioxide
emissions that provide an opportunity for compromise. We do not
support, however, further inaction on sulfur and nitrogen emissions
from power plants due to disagreement in the Senate over the
appropriate provisions on climate change. We need action on acid rain
as soon as possible.
It is also important to acknowledge that stopping acid rain is an
integral part of any climate change strategy. Recent studies from NAPAP
to the Hubbard Brook Foundation acknowledge that acid deposition is
disrupting the life cycle of our forests. From Maine to Georgia, our
forests are in poor health due to the complex and damaging impact of
acid deposition. Healthy forests are critical to carbon sequestration
and to moderate the affects of global warming by cooling the landscape.
The Adirondack Park, with its AForever Wild@ Constitution protection,
may be a model for future climate change programs.
Restoring the vitality of our forests should be a critical element
of any climate change strategy, and that means bringing and end to acid
deposition as rapidly as possible.
______
Response of Bernard Melewski to an Additional Question from Senator
Voinovich
Question. In your testimony, you mentioned that adoption of the
caps proposed for sulfur dioxide and nitrogen oxide in the Clear Skies
Act will set the course for recovery of the Adirondacks, and the many
other acid rain ravaged sections of the country.
Critics of Clear Skies claim that the bill will actually roll back
the Clean Air Act.
Would the recovery you talk about in your testimony be faster under
current Clean Air Act provisions?
Response. The existing provisions of the Clean Air Act are not
adequate to solve the acid rain problem. First, it is an unreliable
assumption that the law will be expeditiously executed. The historic
reality of Clean Air Act implementation has been erratic enforcement,
prolonged litigation and fits and starts in implementation. This
pattern has endured over a number of Democratic and Republican
Administrations. Notably, there has been one exception and that has
been the implementation of the cap and trade market-based provisions of
Title Four of the Clean Air Act Amendments of 1990, the Acid Rain
Provisions. The Clear Skies Act, S. 485 , and other major proposals
before the Committee seek to capitalize on the success of that program
which to date has met or exceeded all deadlines with virtual 100
percent compliance by the affected industry, at significantly below
projected cost.
While the mechanism has been shown to be worth emulating, the caps
on emissions established in 1990 were too high to achieve the
fundamental goal of the program: to stop the damage to sensitive
resources from acid rain. This gap between goal and performance has
been documented in several Reports to Congress since 1990. The Act must
be amended to lower the emission caps on sulfur and to establish a new
cap-and-trade program on nitrogen year-round. A similar cap-and-trade
approach was recently proposed for carbon dioxide emissions for the
northeast by New York Governor George Pataki.
Recent efforts to discredit the Clear Skies Act have compared
projected outcomes from full implementation of the existing Act, with
the projected levels of sulfur dioxide and nitrogen emissions predicted
for the Clear Skies proposal. If one extends the comparison to other
bills sponsored in the Committee, one readily finds that none of the
major proposals are as effective in both nitrogen and sulfur reductions
as the predicted outcome of faithful implementation on of the Clean Air
Act. Either one presumes that nobody knows what they doing on Capitol
Hill or one has to conclude, as we do, that hypothetical scenarios
should not be the basis for establishing national policy.
CLEAR SKIES ACT OF 2003
----------
THURSDAY, MAY 8, 2003
U.S. Senate,
Committee on Environment and Public Works,
Subcommittee on Clean Air, Climate Change and Nuclear
Safety,
Washington, DC.
The subcommittee met, pursuant to notice, at 9:35 a.m. in
room 406, Dirksen Office Building, Hon. George Voinovich
[chairman of the subcommittee] presiding.
Present: Senators Voinovich, Carper, Jeffords [ex officio]
and Inhofe [ex officio].
OPENING STATEMENT OF HON. JAMES M. INHOFE, U.S. SENATOR FROM
THE STATE OF OKLAHOMA
Senator Inhofe. The hearing will come to order.
We have an awkward situation this morning that I will
explain to you. That is we have a vote beginning in about 5
minutes. I have a conflict with the Senate Armed Services
Committee where we are currently marking up that bill, so I
will go ahead with an opening statement. By the time I am
through, I believe the members will be coming in. If not, we
will recess until they come in and I won't be able to stay. Let
me than you for coming, Mr. McSlarrow. It is always a pleasure
working with you in many, many capacities and this is another.
I also want to extend my appreciation to Richard Metz who
made the trip here today from Oklahoma to explain the pressures
facing the natural gas industry.
This hearing will help us understand the relationship of
clean air requirements to natural gas supplies, price levels
and price volatility. Natural gas is a vital fuel source in
meeting our Nation's energy requirements. Natural gas heats
homes, creates electricity for power, plants and industrial
users, and is used as a feedstock in the production of many
goods and services.
In 2002, these sectors consumed almost 22 trillion cubic
feet of natural gas. Powerplants generating electricity for the
grid consumer consume about one fourth that amount, as does the
residential market. The remaining half is largely consumed by
commercial and industrial users.
I am committed to maintaining a diverse fuel mix in the
generation of our Nation's electricity. Natural gas is an
important an integral fuel in maintaining that diversity.
Unfortunately, over the last decade due to clean air
requirements, virtually all powerplants coming on-line has been
gas-fired. One of the strengths of natural gas historically was
that it provided needed supplies at fairly stable and
reasonable prices. I am concerned this strength has been eroded
by the over-reliance on gas to meet our electricity needs. The
effects are already becoming clear. While natural gas prices
were fairly stable through the 1990's, the prices have become
more volatile in recent years. As this chart shows, in 2000 and
early 2001, average monthly natural gas wellhead spot prices
climbed from about $2 to $9, then settled down to $2 at the end
of that year. Earlier this year, average prices climbed to more
than $7 with prices spiking at $19 on February 25.
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
As this next chart shows, gas prices are not only becoming
more volatile, but are projected to increase in real terms. As
you can see, according to Energy Administration reports, the
2003 projected prices through 2005 are higher for the same
period than had been forecast for just the year before. Even
2003 projections now look overly optimistic given current
prices of $6.
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
Of course these price swings and hikes do not occur in a
vacuum. Part of this is due to limits on production and
restrictions on constructing pipelines which are issues I
believe need to be resolved to help the industry continue to
supply this critical fuel source.
At the same time as gas production is facing increased
challenges, demand has increased and that demand is projected
to increase more in the future as this chart shows. This spike
in demand has had adverse impacts on small businesses, many
fertilizer manufacturers and plants have gone out of business
as a result of the price spikes over the last few years. Many
manufacturers use natural gas not only to power their
facilities but in the production process itself. U.S. chemical
producers are now the world's highest cost producers because
they are dependent upon natural gas prices and prices are
higher here than elsewhere in the world.
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
I remain concerned that with the large amount of investment
needed by coal plants to comply with significant emissions
reductions contemplated under Clear Skies, fuel switching could
become even worse despite the rising prices. As I have said
before, one of my top priorities is to ensure that quality
science drives policy and not the other way around. We have had
some bad experiences in the past where policies were derived
and concluded and then they come up with the science to justify
the policy positions.
It is imperative that this committee be sure the modeling
assumptions used to justify the bill related to fuel switching,
natural gas markets, and control technologies are accurate and
objective. In future hearings on Clear Skies, I hope the
Administration will provide us with the necessary data to make
these evaluations.
I have testimony from the Aluminum Association and
Fertilizer Institute and will submit them for the record.
Without objection, it will be submitted.
With that, we have a vote in progress and I believe
probably the members of the committee are going to vote and
then come here. I appreciate the indulgence of the audience, of
you Mr. McSlarrow and you Mr. Metz for having to proceed in
this manner. Thank you very much.
We are now in recess subject to the call of the chair.
[Recess.]
OPENING STATEMENT OF HON. GEORGE V. VOINOVICH, U.S. SENATOR
FROM THE STATE OF OHIO
Senator Voinovich. The hearing will come out of recess.
I understand from talking to the chairman of the committee
that he began the hearing this morning and shared his opening
statements with you.
I would like you to know this is the second hearing we have
had on the Clear Skies Act, S. 485 and continues the discussion
we in this committee have had for several years on the complex
issue of how to clear our air by reducing emissions without
putting our economy in a stranglehold.
Today's hearing will focus on the issues surrounding our
use of natural gas to generate electricity. There is perhaps no
greater illustration of our need to harmonize our environmental
and energy policies than the effects of fuel switching from
coal-based generation of electricity to natural gas-based
generation on our economy. Americans consumed 22.6 trillion
cubic feet of natural gas in 2001; currently we consume
approximately 25 trillion cubic feet annually and are projected
to consume 37.5 trillion cubic feet in 2025. Natural gas is
used to heat homes, generate electricity and in the commercial,
industrial and transportation sectors.
Historically, the industrial sector has been the largest
natural gas consuming sector, consuming 7.5 trillion cubic feet
in 2001, followed by residential use for home heating, water
heating and cooking and natural gas consumption in the
industrial and residential sectors is roughly about what it was
in the 1980's. Natural gas for electricity generation, however,
has risen considerably during the last two decades to 5.3
trillion cubic feet in 2001 and is projected to grow even more
dramatically over the next 2 years. EIA projects that 30
percent of the electricity generated in 2025 will be natural
gas-based, a significant increase over the 17 percent of our
electricity that was generated by natural gas in 2001 and 2002.
Reliance on natural gas for even this much generation has
put a tremendous strain on natural gas supplies and pushed
prices on available gas to record high prices. The President's
National Energy Policy Task Force projected that over 1,300 new
powerplants will be needed to be built to satisfy America's
energy needs over the next 20 years. Because of the emissions
limits and regulatory uncertainty triggered by the Clean Air
Act, the Department of Energy currently predicts that over 90
percent of these new plants will be powered by natural gas.
Just this week, I was told by the CEO of a major utility in
Ohio that does business not only in Ohio but in the Midwest,
that due to regulatory uncertainty, surrounding coal-based
generation that confronts him, the only option he has when
building new capacity is to switch to natural gas because of
where we are today in terms of the uncertainty of the future.
We do not have enough natural gas to power all these new
facilities and we do not have the capability to increase our
supply to meet this demand. We do, however, have major domestic
reserves of natural gas in the Rockies, off the East Coast, off
the West Coast and in the Gulf of New Mexico that are off
limits for development. We have tremendous reserves of natural
gas in Alaska without the ability to pipe it down to the lower
48. Perhaps most disturbing, we have seen a 5.6 percent decline
in natural gas supplies in the continental United States in
2002 and a 2.3 percent decline in domestic natural gas
production in 2002.
Unless Congress develops a plan to deal with the situation,
we are looking at major natural gas shortages and enormous
increases in natural gas prices which will inevitably lead to
higher electricity prices. Shortages of the natural gas supply
result in increase in natural gas prices and do not just affect
utilities. This is very important. Many other industries rely
on natural gas such as the agriculture community, the steel and
metal industries, the plastic manufacturing industry which is
being devastated in Ohio because of the high cost of natural
gas, polymer manufacturers and the food processing industry.
A major shortage of natural gas coupled with skyrocketing
energy prices will ensure that many of our companies will no
longer be able to remain competitive in the global marketplace.
Today we will hear from Jim Krimmel, the President of Zaclon
Chemical, Inc., an Ohio-based chemical manufacturer with
worldwide sales who will discuss the enormous burdens that
increased energy costs have placed on his business and
threatened the very existence of his company.
Although high natural gas prices have severely affected
businesses and their ability to compete in the global
marketplace, they have an even more profound impact on low
income families and the elderly. Each year, many Americans are
forced to make choices between paying to heat their homes, for
food or other essentials such as medicine and energy prices are
very, very high.
In order to diffuse the time bomb of skyrocketing natural
gas and electricity prices that is sitting in our lap, Congress
must enact a comprehensive energy policy that will increase our
development of natural gas supplies and ensure that we have a
diverse fuel mix for electricity generation that includes
nuclear renewables, natural gas and coal. To get there, the
Senate must pass both comprehensive energy legislation that
promotes domestic natural gas development and multi-pollutant
legislation that will streamline the regulatory process,
maintain the diversity of our fuel mix and achieve greater
emissions cuts to protect our environment.
I am pleased to note that our distinguished Majority
Leader, Senator Frist, has brought the Energy bill to the
Senate floor this week in order to address our Nation's need
for a comprehensive energy policy. It is no coincidence that we
are considering both energy legislation and environmental
legislation at the same time as they really are two sides of
the same coin. Any worthwhile energy policy must take into
account protection of the environment and at the same time any
worthwhile environmental policy must take into account
protection of our economy.
The Clear Skies Act, S. 485, I believe is an example of
environmental legislation that will protect our economy, will
improve the Clean Air Act by providing greater certainty that
emissions are reduced while providing a stable, regulatory
environment that allows utilities to install necessary
pollution controls without the fear that those controls will be
obsolete before they are paid for. It will result in cleaner
air, less regulation, and litigation. It will lower energy
costs to manufacturers and American consumers. Simply put, this
legislation will provide tremendous benefits to the environment
and is crucial to the long term survival of our economy and our
manufacturing base.
I want all of you to note here that manufacturing in this
country is really under pressure today. It is more vulnerable
today and more at risk than at any time in my career in
government.
The flexibility of the Clear Skies market base cap and
trade program and the certainty of emissions reduction targets
will ensure that the real emissions reductions called for in
this bill can be achieved without forcing utilities to fuel
switch and without forcing electricity and natural gas prices
through the roof. Perhaps more importantly, Clear Skies will
help ensure that the least of our brothers and sisters will not
be forced to forego heating their homes and that our companies
will not be forced to move overseas to remain competitive in
the global marketplace due to high cost of electricity and
natural gas.
As I mentioned at the beginning of my remarks, this is the
second hearing we are holding in this subcommittee on Clear
Skies. It is my intention to hold a third hearing on this
legislation in the near future that will focus on emissions
reduction technology and issues surrounding the financial
stability of the utilities that are required to install such
equipment in order to complete with the Clean Air Act
requirements.
I also intend to mark up Clear Skies at the subcommittee
level following the Memorial Day recess and I want to restate
my firm commitment to push hard to have the full committee
report to the floor and have the Senate pass this bill in this
Congress.
I want to thank our first witness this morning, Deputy
Secretary McSlarrow for coming to present the Administration's
take on natural gas supply and pricing issues to the
subcommittee. I look forward also to the testimony of our other
witnesses and to working with members of the subcommittee as we
move forward on legislation to address these critical issues.
Senator Jeffords, the ranking member of the committee, has
joined us. Senator Jeffords?
OPENING STATEMENT OF HON. JAMES M. JEFFORDS, U.S. SENATOR FROM
THE STATE OF VERMONT
Senator Jeffords. Thank you.
It is always important that the committee collect
information on the effects of legislation on various sectors of
the economy, including energy, industry and natural gas. Of
course, however, the committee's first and foremost
responsibility is to be sure the Nation's laws are protective
of public health and the environment. It is our job to set
performance standards for industry that are adequately
productive and wherever possible, fuel neutral. These standards
should not be skewed to protect any one industry but should
encourage sustainable, economic development.
The Clear Skies proposal does not fit that criteria. As one
analyst said, ``It is the best case scenario for coal.'' The
proposal was designed to protect 40 or 50 year old coal-burning
plants from any risk of having to meet modern environmental
standards or needs. That is hardly fuel neutral and so it does
nothing to stimulate the development of technology to burn coal
more cleanly and efficiently.
I have grave concerns that Clear Skies will do a much worse
job than the current Clean Air Act when fully and faithfully
implemented. Clear Skies caps are too weak, the deadlines are
too late, and the State authorities are to degraded. Because of
these flaws, the bill will delay the attainment in many areas
forcing millions of people to breathe unhealthy air longer than
the current Air Act allows. That is the outcome that I am not
willing to accept.
As I have noted in previous hearings, quality and timely
information is crucial if we are going to work out a compromise
on multi-pollutant legislation that can be supported by this
committee. Unfortunately, such information has been hard to
come by from this Administration. I am starting to believe that
this is because they are not interested in compromise.
Governor Whitman promised me in February that the
information flow would improve but I am still waiting on
answers to questions from March. Perhaps Mr. McSlarrow can
explain today why the Department of Energy has completely
failed to provide an NSR document log that it promised on
September 25, 2002 would be delivered to the committee on
October 24, 2002. In addition, at some point very soon, the
Administration will have to explain why they are not allowing
EPA to run emissions and economic modeling for the Federal
Advisory Committee working on the Utility MACT Rule.
Without objection, I would like to place in the record
NESCAUM's effort to analyze what EPA won't.
Senator Voinovich. Without objection.
[The information referred to follows:]
Mercury MACT Under the Clean Air Act: An Assessment of the Mercury
Emissions Outcomes of Stakeholder Group Recommendations
nescaum--may 8, 2003
1.0 Background
Mercury is a persistent, bioaccumulative, neurotoxic pollutant.
When released into the environment and deposited or carried into water
bodies, mercury is easily converted to methylmercury, a particularly
toxic mercury compound, and accumulates in sediments. Methylmercury is
readily transmitted up the food chain and accumulates in the tissues of
animals. Exposure to mercury can cause numerous adverse effects in
plants, birds, and mammals, including humans.
In humans, methylmercury is transported across the placenta into
the brain of the developing fetus. In young children and fetuses,
methylmercury inhibits the normal development of the nervous system, an
effect that may occur even at low exposure levels. This damage
frequently is not apparent until later in the developmental process,
when motor and verbal skills are found to be delayed or abnormal.
Developmental effects have been found in children exposed in utero,
even though their mothers did not experience any symptoms of adult
toxicity. States are sufficiently concerned about the public health
impacts of mercury exposure that most have posted advisory warnings
about fish consumption--the primary exposure route in humans.
In 1998, the U.S. Environmental Protection Agency (EPA) identified
mercury as the hazardous air pollutant of ``greatest potential
concern'' associated with coal-fired electricity production.\1\
Moreover, coal-fired power plants were identified as the largest
remaining source of airborne mercury emissions in the U.S. following
the regulation of other important mercury sources, such as municipal
and medical waste incinerators, in the late 1990's. Under a legal
settlement reached pursuant to the Clean Air Act Amendments of 1990,
EPA is required to promulgate mercury emissions standards for
electricity generating utility boilers by December 2004. These
standards--which according to the explicit language of the Clean Air
Act must reflect the utilization of ``Maximum Achievable Control
Technology'' for mercury--are expected to be implemented by December
2007.
---------------------------------------------------------------------------
\1\U.S. EPA. 1998. Study of Hazardous Air Pollutant Emissions from
Electric Utility Steam Generating Units--Final Report to Congress.
---------------------------------------------------------------------------
To assist in the development of Maximum Achievable Control
Technology (MACT) standards for power plant mercury emissions, EPA
convened a multi-stakeholder group known as the Utility MACT Working
Group (hereafter, Working Group). The Northeast States for Coordinated
Air Use Management (NESCAUM) has participated in this group since its
inception. NESCAUM is an interstate association of air quality control
agencies in the eight Northeast States (the six New England States, New
York, and New Jersey). Together with other Working Group participants,
NESCAUM worked to develop a set of specific recommendations to EPA
concerning issues related to the setting of MACT standards for mercury
emissions, consistent with the requirements of the Clean Air Act.
Ultimately, the stakeholder groups participating in the Working
Group could not agree on a single set of recommendations for mercury
emissions standards. Instead, the Working Group's deliberations
resulted in separate recommendations from a range of stakeholders,
including distinct recommendations from four major stakeholder groups:
the State and Local Agency Stakeholders,\2\ the Environmental
Stakeholders,\3\ the Clean Energy Group (CEG),\4\ and multi-industry
stakeholders under the name ``Majority Industry Group.''\5\ The first
three of these groups reached significant consensus, however, jointly
signing a memorandum to the members of the Clean Air Act Advisory
Committee indicating that there were, in fact, broad areas of agreement
among them.\6\ This memorandum also expressed concern that the final
report of the Working Group had obscured the extent to which consensus
had been achieved among many of the stakeholders on important issues.
---------------------------------------------------------------------------
\2\State and Local Agency Stakeholders included NESCAUM, STAPPA/
ALAPCO, the State of New Jersey, and the Regional Air Pollution Control
Agency (RAPCA) based in Dayton, Ohio. (The State of Texas also
participated in the Working Group, but preferred to offer a separate
opinion on several issues.)
\3\Environmental Stakeholders included the Clean Air Task Force,
National Wildlife Federation, National Environmental Trust, Natural
Resources Defense Council, and Environmental Defense.
\4\The Clean Energy Group was represented in the Working Group by
PG&E National Energy Group. Two of its members, Consolidated Edison and
Public Service Enterprise Group, also participated in the Working
Group. Other Clean Energy Group members include Conectiv, Exelon
Corporation, KeySpan, Northeast Utilities, and Sempra Energy.
\5\The Majority Industry Group was represented principally by
Cinergy, the Class of 85 Regulatory Response Group, Latham & Watkins,
the National Mining Association, Seminole Electric Cooperative,
Southern Company Generation, the United Mine Workers, the Utility Air
Regulatory Group, West Associates, the American Public Power
Association, and the National Rural Electric Cooperative Association.
\6\``Areas of Agreement Among Stakeholders in the Utility MACT
Working Group,'' Memorandum dated October 30, 2002.
---------------------------------------------------------------------------
Throughout the Working Group's deliberations, EPA represented its
intention to model the impact of stakeholder group recommendations on
mercury emissions from the electric power sector using ICF's IPM model.
Recently, however, EPA indicated that it will delay--and perhaps forego
entirely--any IPM analysis of stakeholder recommendations. In light of
this decision, NESCAUM decided to analyze the emissions impacts of the
recommendations of these four stakeholder groups participating in the
Working Group.
Each of the stakeholder groups submitted recommendations for
mercury reductions in terms of a specific rate-based emission standard
or an alternative approach allowing sources to meet either a specific
rate-based emission standard or a specific percentage reduction
requirement. NESCAUM undertook this analysis in order to translate each
group's recommendations into the annual tons of mercury that would be
released to the environment. Notwithstanding this analysis, NESCAUM
urges EPA to model the stakeholder group recommendations with IPM,
consistent with its original representations, in order to provide a
more complete picture of the emissions impact of implementing various
policy options for regulating mercury from power plants.
2.0 Methodology
The total mercury tonnage that would be emitted under each
stakeholder group's MACT recommendation was calculated using the
underlying fuel consumption data and uncontrolled mercury emissions
information reported in EPA's Utility Air Toxics Study data base. This
analysis does not attempt to project growth in fuel consumption, nor
does it model changes in the methods of electricity production. Such a
dynamic analysis would require the use of a system dispatch model like
IPM. However, we are confident that this analysis provides reasonable
estimates of the annual tons of mercury that would be emitted by the
electric power sector under each of the scenarios considered.
All of the stakeholder group recommendations were analyzed using a
subset of the power plants in the EPA Utility Air Toxics Study data
base.\7\ Plant-by-plant mercury emissions estimates were downloaded
from EPA's website.\8\ These data were compared with mercury input
concentrations in the coal purchased by power plants, which was
compiled from first, second, third and fourth quarter 1999 coal data
downloaded from the same source.\9\ There were 412 power plants for
which both coal data and EPA plant emissions estimates existed for
mercury. These 412 facilities--emitting an estimated 44.6 tons of
mercury in 1999--were included in the analysis. EPA estimates that the
entire universe of facilities in its Utility Air Toxics Study data base
emitted approximately 48 tons of mercury in 1999.
---------------------------------------------------------------------------
\7\This was necessary because certain data were not available for
a small subset of the facilities in the EPA Utility Air Toxics Study
data base.
\8\``Plant by Plant Emissions Estimates,'' Wordperfect file
downloaded March 26, 2002 from http://www.epa.gov/ttn/atw/combust/
utiltox/utoxpg.html.
\9\Data base compiled by Michael Aucott of the New Jersey
Department of Environmental Protection.
---------------------------------------------------------------------------
Because the State and Local Agency Stakeholder group recommendation
did not include lignite, coal-fired power plants that reported lignite
as their primary coal type were excluded from the analysis of that
group's recommendations, eliminating 11 facilities. These 11 facilities
generated an estimated 3.1 tons of mercury emissions in 1999.
Eliminating these 11 facilities left 401 coal-fired power plants
available for the analysis of this stakeholder group's MACT
recommendation. In 1999, these 401 power plants emitted an estimated
41.5 tons of mercury.
In converting the stakeholders' recommendations to annual mercury
emissions in tons, the analysis assumes that those sources whose
emissions are already below the recommended limits will not increase
their emissions to the maximum allowable level.
3.0 Analysis of Stakeholder Group Recommendations
Annual emissions in tons of mercury from electric power plants
after the MACT standard is implemented are estimated below for each of
the recommendations of the four stakeholder groups. The results of this
assessment are summarized in Appendix A.
3.1 State and Local Agency Stakeholder Group
Recommendation: The State and Local Agency Stakeholders recommended
a plant-by-plant standard equivalent to the less stringent of 0.4-0.6
pounds per trillion British thermal units (lbs/TBtu) or a 90 percent
reduction (from the mercury content in coal). This standard would only
apply to bituminous and subbituminous coal. This stakeholder group did
not submit a recommendation for plants burning primarily lignite.
Two approaches were analyzed. The first allowed sources to choose
between complying with a rate-based emission standard of 0.6 lbs/TBtu
or a 90 percent reduction from the mercury content in coal. It was
assumed that sources would select the less stringent of these two
compliance paths. Using this approach, of the 401 facilities included
in this stakeholder group's analysis, 47 facilities would continue to
emit at current levels (i.e., current emissions are below the proposed
standard), 188 would choose to comply with the 90 percent control
efficiency option, and 166 would choose to comply with the emission
rate standard of 0.6 lbs/TBtu. Overall, this would result in annual
mercury emissions of approximately 6.7 tons.
The second approach allowed sources to choose between a rate-based
emission standard of 0.4 lbs/TBtu or a 90 percent reduction. Using the
method applied above, 43 of the 401 facilities included in the analysis
would continue to emit at current levels (i.e., current emissions are
below the proposed standard), 306 would choose to comply with the 90
percent control efficiency option, and 52 would choose to comply with
the emission rate standard of 0.4 lbs/TBtu. Overall, this would result
in annual mercury emissions of 6.3 tons.
3.2 Environmental Stakeholder Group
Recommendation: The Environmental Stakeholders recommended a plant-
by-plant standard of 0.19 lbs/TBtu for fluidized bed combustion (FBC)
facilities and 0.21 lbs/TBtu for all other facility types. This
standard would apply to all coal types.
The Environmental Stakeholder Group's recommendation applied to all
coal types, allowing the 11 lignite-burning plants to be included in
this analysis, yielding a total of 412 facilities for which adequate
data were available to assess the emissions impact of the recommended
standards. Overall, the Environmental Stakeholder Group's recommended
standards would result in annual mercury emissions of 1.9 tons.
3.3 Clean Energy Group Recommendation
Recommendation: The Clean Energy Group recommended a plant-by-plant
standard of 0.320 lbs/TBtu for FBC facilities burning bituminous or
subbituminous coal, 1.223 lbs/TBtu for all other boiler types burning
bituminous or subbituminous coal, 11.984 lbs/TBtu for FBC facilities
burning lignite, and 9.091 lbs/TBtu for all other boiler types burning
lignite. Although CEG has indicated it would support a standard
allowing sources to comply with either a specified emission rate or a
specified control efficiency, CEG made emission rate recommendations
only based on its understanding that IPM cannot model control
efficiency standards.
The Clean Energy Group's recommendation was applied to all 412
facilities for which adequate emissions data were available. Overall,
the Clean Energy Group's recommended standards would result in annual
mercury emissions of 13.1 tons.
3.4 Majority Industry Group Recommendation
Recommendation: The Majority Industry Group recommended a plant-by-
plant standard of 3.7 lbs/TBtu for hot stack facilities burning
bituminous coal, 2.2 lbs/TBtu for saturated stack facilities burning
bituminous coal, 3.2 lbs/TBtu for wet stack facilities burning
bituminous coal, 4.2 lbs/TBtu for facilities burning subbituminous
coal, 6.5 lbs/TBtu for facilities burning lignite, and 2.0 lbs/TBtu for
FBC facilities.
NESCAUM did not have access to data regarding the stack
characteristics of the facilities burning bituminous coal (i.e., hot,
saturated, or wet), and thus was unable to precisely convert the
Majority Industry Group's recommendation into total tons of mercury
emitted annually. We bracketed the range of annual emissions, however,
by calculating tons emitted from facilities burning bituminous coal
assuming: (1) that for the low (most stringent) end of the range, all
such facilities would comply with the lowest recommended emission rate
of 2.2 lbs/TBtu, and (2) that for the high (least stringent) end of the
range, all such facilities would comply with the highest recommended
emission rate of 3.7 lbs/TBtu. Emission rates for other facilities and
fuel types were applied as recommended. Overall, the Majority Industry
Group's recommended standards would result in annual mercury emissions
between 25.0 and 30.0 tons.
4.0 Discussion
Under the Federal Clean Air Act, the mercury MACT standard for the
electric generating sector is required to be proposed by December 2003,
promulgated in final form by December 2004, and is expected to be
implemented by December 2007. Thus, under the existing Clean Air Act
(i.e., unmodified by any Federal multi-pollutant legislation applicable
to the power sector), the public can expect reductions in mercury
pollution from power plants to occur by the end of 2007.
It is difficult to predict the level at which EPA will ultimately
set the mercury MACT standard. However, it is worth noting that some
States have already moved to adopt mercury standards in the range of
stringency recommended by the State and Local Agencies Stakeholder
Group and on a similar timeline to that expected under the Clean Air
Act for implementation of a Federal MACT standard. In March 2003, for
instance, a coalition\10\ of an electric generating company and several
environmental groups publicly issued a joint recommendation to the
Connecticut General Assembly calling for legislation establishing
stringent mercury emission standards for Connecticut's coal-fired power
plants. Specifically, their proposal would require coal-fired plants in
Connecticut to achieve either a mercury emission rate of 0.6 lbs/TBtu
or a 90 percent control technology efficiency by July 2008. The
proposal further directs the Connecticut Department of Environmental
Protection to consider new emissions standards for mercury in 2012.
Similarly, the Massachusetts Department of Environmental Protection has
concluded that the removal of at least 85-90 percent of mercury in flue
gas has been demonstrated to be technologically and economically
feasible.\11\
---------------------------------------------------------------------------
\10\This coalition included PSEG Power Connecticut, Clean Water
Action, the Connecticut Coalition for Clean Air, and the Clean Air Task
Force.
\11\``Evaluation of the Technological and Economic Feasibility of
Controlling and Eliminating Mercury Emissions from the Combustion of
Fossil Fuel,'' Massachusetts Department of Environmental Protection,
December 2002.
---------------------------------------------------------------------------
5.0 Conclusion
This analysis was conducted to facilitate comparisons among
different Stakeholder Group recommendations within the EPA Utility MACT
Working Group process and several legislative proposals currently
before Congress to reduce multiple types of pollutant emissions from
the power sector, including mercury. Most of these legislative
proposals would set aside the MACT process authorized under the Clean
Air Act and would address power plant mercury emissions directly, in
most cases by establishing a national cap on power sector mercury
emissions and (in some cases) also establishing facility-specific
minimum mercury reduction requirements. An important dimension of all
of these proposals is the timeframe over which mercury reductions would
be implemented. As noted several times in this discussion, under
current law new MACT standards will be implemented by the end of 2007.
By comparison, at least one proposal now before Congress delays full
action on mercury for more than a decade compared to the mercury MACT
process.
The consequences of delay in implementing new mercury control
requirements are potentially significant in terms of foregone
reductions in the quantities of this persistent, bio-accumulative toxin
that will be released to the environment over the next 10 to 15 years.
Compared to the MACT recommendations of the State and Local Agency
Stakeholder Group, for example, the more delayed legislative proposal
noted previously would result in the allowable emission of an
additional 258 tons of mercury between 2007 and 2020. Even assuming EPA
picks a less stringent MACT standard representing a middle ground
between the more centrist Stakeholder Group recommendations summarized
in Appendix A, foregone emissions reductions relative to the more
delayed legislative proposals now before Congress could be significant.
For example, utilizing the same comparison as above, a MACT standard
equivalent to an annual cap of 11 tons--if implemented in 2008--would
likely reduce cumulative emissions by more than 180 tons by 2020,
compared to a phased approach that delays similar levels of control for
another 10 years. This represents approximately 4 years worth of
mercury emissions at current emission rates (44.6-48.0 tons per year).
Due to its persistence in the environment, any additional mercury
emitted as a result of delaying new control requirements will remain
bioavailable for years, needlessly accumulating in the food chain that
ultimately reaches humans.
We hope that the results of this analysis will help avoid lost
opportunities of this nature by providing useful guidance both to EPA
in reaching its final mercury MACT determination for power plants and
to policymakers in Congress as they consider multi-pollutant
legislation incorporating mercury emission limits.
Appendix A.
SUMMARY OF ANALYSIS RESULTS
NESCAUM--May 5, 2003
------------------------------------------------------------------------
Recommended Relevant Post-MACT
Mercury Annual Annual
Stakeholder Group Emission Baseline Emissions
Standard (tons) (tons)
------------------------------------------------------------------------
Environmental Stakeholders... 0.19 lbs/TBtu
for FBC
facilities.
44.6........... 1.9
0.21 lbs/TBtu for all other
facility types for all coal
types
State and Local Agencies..... 0.4-0.6 lbs/ 41.5 6.3-6.7
TBtu or a 90
percent
reduction,
applied to
bituminous and
subbituminous
coal.
Clean Energy Group........... 0.320 lbs/TBtu
for FBC
facilities
burning
bituminous or
sub-bituminous
coal.
1.223 lbs/TBtu for all other
boiler types burning
bituminous or sub-bituminous
coal
11.984 lbs/TBtu for FBC
facilities burning lignite
44.6........... 13.1
9.091 lbs/TBtu for all other
boiler types burning lignite
Majority Industry Group...... 3.7 lbs/TBtu
for hot stack
facilities
burning
bituminous
coal.
2.2 lbs/TBtu for saturated
stack facilities burning
bituminous coal
3.2 lbs/TBtu for wet stack
facilities burning
bituminous coal
4.2 lbs/TBtu for facilities
burning subbituminous coal
6.5 lbs/TBtu for facilities
burning lignite
44.6........... 20.0-30.0
2.0 lbs/TBtu for FBC
facilities
------------------------------------------------------------------------
Senator Jeffords. The Administration's behavior on this
issue makes me think they don't want information in the public
domain if it might show the mercury caps in Clear Skies are
above what is achievable and cost effective with today's
technology. This failure to deliver promised information looks
like intentional derailing of the Utility MACT Rule. At the
right time, I hope the court enforcing the consent decree will
note the Administration's bad faith on this
Mercury is a potent air toxic emitted by coal burning
powerplants. Emissions must be reduced quickly and deeply. I
ask that a letter on mercury from more than 200 State and local
conservation organizations and officials be included in the
hearing record.
Senator Voinovich. Without objection.
[The information referred to follows:]
205 State and Local Conservation Organizations, Businesses and Elected
Officials
May 7, 2003.
U.S. Senate and House of Representatives,
Washington, DC 20003.
Dear Senators and Members of Congress: As the Senate and House begin
consideration of the President's air pollution proposal, introduced on
February 27 by Senators James Inhofe and George Voinovich and
Representatives Billy Tauzin and Joe Barton, it is critical that you
are aware of our concerns that the bill moves the Nation backwards
rather than forwards on air pollution. Rather than build on a firm
foundation of the Clean Air Act, the President's bill severely
undermines that foundation, leaving the public to rely solely upon a
system of pollution caps that will allow higher emissions over a much
longer period of time than current law. We strongly urge you to reject
this approach.
This unfortunate reality is especially evident in the sections of
the President's bill that address emissions of mercury, an extremely
toxic heavy metal. Much of the mercury pollution emitted into our air
ends up in our food chain, accumulating in fish, a staple of the
American diet. The problem is widespread: 44 States have posted mercury
advisories warning people to limit consumption of fish from 10,179, 247
acres of lakes and 414, 973 miles of rivers.
For those who eat mercury-tainted fish, the health risks are
serious, especially for unborn infants and very young children whose
neurological systems are developing.
<bullet> A recent study by the Centers for Disease Control
Prevention estimates that 8 percent of women of child-bearing years in
the U.S. have unsafe levels of mercury that put their children at risk
for developmental delays, neurological damage and other health
problems.
<bullet> As many as 300,000 children are born in the United States
each year with a heightened risk for health effects related to mercury
exposure.
As mercury contamination becomes a more pressing public health
issue, businesses that support the recreational fishing industries
stand to lose. The sport fishing industry alone generates more than
$100 billion per year in revenues. This figure does not even begin to
calculate the risk of mercury contamination to American businesses that
depend on a robust market for fish sold in the grocery stores or at
restaurants all across the Nation, nor does this number begin to value
the loss of fish as a source of food for those who rely on it for their
families or their way of life.
After years of research, EPA concluded in 2001 that it was
necessary and appropriate to set mercury standards under Section 112 of
the Clean Air Act for power plants, the largest industrial source, and
a source which is currently unregulated. These standards, which are due
to be proposed this year, will be based on technologies that can remove
as much as 90 percent of the mercury in coal from power plant
smokestacks before it is released into the air, bringing the national
power plant mercury load down to roughly five tons per year by 2008.
This level of protection is not only possible but absolutely warranted
by the severity of the health concerns and the level of the economic
threat.
It is therefore alarming that the President's pollution plan
eliminates these standards entirely. Instead, the President proposed to
impose a national cap on mercury emissions. However, that cap would
allow power plants to emit 26 tons of mercury until 2018, after which
time they could continue to emit 15 tons of mercury each year. Even at
this late date, the mercury levels allowed by the President's plan are
three times higher than levels that would result from vigorous
enforcement of current law.
The President's plan weakens mercury protections in several other
important ways:
<bullet> Under current law, coal-fired power plants would have
stringent emission limits written into a permit. The President's bill
would repeal source-by-source permitting, allowing polluters to
``trade'' mercury. It also would likely result in mercury emissions
increasing at specific power plants, according to EPA.
<bullet> Under current law, EPA is required to impose stricter
standards if risks to public health remain. The President's bill
removes that public health safeguard.
<bullet> Under current law, new sources of mercury are required to
meet stringent mercury emission limits. Under President's bill,
controls would be imposed on new power plants only if ``economically
and technologically feasible'' for the plants to comply.
Please take these concerns into consideration as you prepare to
legislate on power plant emissions policy. We strongly urge you to
reject any policy that weakens current law for any power plant
pollutant and instead insist upon building on the strong foundation of
the current Clean Air Act to strengthen public health safeguards.
Sincerely,
al
Alabama Environmental Council Jayme Hill, Executive Director
Birmingham, AL
ar
Eugene Levy, Rabbi Temple Banai Israel
Little Rock, AR
Timothy Reeves, Pastor
First Presbyterian Church, Stuttgart
Stuttgart, AR
June Simmons
All Our Children, Inc. West
Memphis, AR
ca
Evan Paul Environment California
Sacramento, CA
Hanan Obeidi
Southern California Public Health Association President
George Luna Mayor Pro Tem
City of Atascadero
Carolyn Jackson
Board Member, Park, Recreation, and Community Services Board
City of Burbank
Susan R. Ellis
Environmental Commissioner
City of Calabasas
Robert Yalda
Traffic and Transportation Division Manager
City of Calabasas
George Chapjian Mayor
City of Duarte
Connie Boardman, 8Mayor
City of Huntington Beach
Bonnie Lowenthal Councilmember
City of Long Beach
Dan Baker Councilmember
City of Long Beach
Christine Mulholland Vice-mayor
City of San Luis Obispo
Kenneth E. Schwartz, FAIA Councilman
City of San Luis Obispo
Kevin McKeown Mayor pro tem
City of Santa Monica
Michael Feinstein Councilmember
City of Santa Monica
Philip Gatch
Director
Community Development Agency
City of Thousand Oaks
Ben Wong Councilmember
City of West Covina
co
Chris Cooper, Owner
Pearl Street Software 1630A 30th St. 106
Boulder, CO 80301
Mark Rogers, Owner
Conservation Consulting 433 Chestnut Way
Broomfield, CO 80020
Heidi Cies, Owner
Heidi Cies Graphic Design 5440 Conley Way
Denver, CO 80222
Mark Stamper, Owner M
ark Stamper Construction
13284 W. 65th Drive
Arvada, CO 80004.
Ann S. Egan, Owner
Awnings by Annie
P.O. Box 2103
Eagle, CO 81631
William W. Gray, Owner
Brush Creek Caretaking and Housesitting
P.O. Box 2103
Eagle, CO 81631
Christopher N. Tennis
Sanchez Tennis & Associates, LLC
470 Fountaintree Lane Boulder,
Colorado 80304
Matthew Lancaster, ASMP
Remarkable Earth Photography
2855 Ash Street
Denver, Colorado 80207
Bill Clymer President
CFV!
P.O. 142
Victor CO, 80860
Robin Hubbard
Environment Colorado Field Director
Denver, CO
Huron Bait and Tackle 866
Washington St
Thornton, Co. 80229
Intermountain Communication Services, Inc.
Dave Moore, Owner
1416 Grand Ave.
Glenwood Springs, CO 81601
Ted Pascoe
Physicians for Social Responsibility,
Colorado Chapter 1738 Wynkoop #1
Denver, CO 80202
Amanda Champany, Community Organizer
Colorado People's Environmental and Economic Network
2332 E. 46th Ave
Denver, CO 80206
A-1 Scuba and Travel Center
1800 W. Oxford Ave
Englewood, CO 80110
George Ewing, Manager
Great Outdoor Clothing Company
14500 W. Colfax Ave, #514
Lakewood, CO 80401
Mike Gilbert, Manager
303 Boards
14500 W. Colfax Ave 371
Lakewood, CO 80401
sportsfan
Scott Meyer, Manager
14500 W. Colfax Ave
Lakewood, CO 80401
Carlos Santana Jr., Manager
Just Sports USA
14500 W. Colfax Ave #329
Lakewood, CO 80401
Mike Whitney, Manager
The Athlete's Foot
14500 W. Colfax Ave 407
Lakewood, CO 80401
Amanda Champany
The Colorado People's Environmental and Economic Network
2332 E 46th Ave
Denver CO 80206
Ted Pascoe
Physicians for Social Responsibility-Colorado 1738 Wynkoop 1
Denver, CO 20202
ct
Susanne Brazauskas
Collaborative Center for Justice
40 Clifford Street
Hartford, CT 06114-1717
Kelly Benkert
Connecticut Public Interest Research Group
Hartford, CT
de
Michael E. Riska Executive Director
Delaware Nature Society
Hockessin, DE
fl
Ronald Saff M.D.
Allergy & Asthma Diagnostic Treatment Center
2300 Centerville Rd.
Tallahassee, FL. 32308
Doreen Archer, Co-President
League of Women Voters of Space Coast
1265 St. George Rd.
Merritt Island, FL 32952
Mark Ferrulo
Florida Public Interest Research Group
Tallahassee, FL
Harley Gutin Attorney at Law
5190 North U.S. 1
Cocoa, FL 32927
Dr. D.K. Cinquemani, Ph.D., Chair
Safe Earth Alliance 7100 Ulmerton Rd. 174
Largo, FL 33771
Southern Alliance for Clean Energy
Ulla Reeves, Regional Air Director
Pensacola, FL
National Environmental Trust
Tom Sadler
Florida Representative
Miramar, FL
Legal Environmental Assistance Foundation
Cynthia Valencic
Vice President
Tallahassee, FL
Florida Consumer Action Network
Bill Newton
Executive Director
Tampa, FL
Southeastern Fisheries Association
Bob Jones
Executive Director
Tallahassee, FL
Florida Wildlife Federation
Manley Fuller President
Tallahassee, FL
Allen Broussard Conservancy
Dr. Wm. J. or Margaret Broussard
3660 N. Riverside Drive
Indialantic, FL 32903
Friends of the Scrub
Contact: Edwina R. Davis 430 Bahama Dr.
Indialantic, FL 32903
American Birding Association
Dr. Wm. J. or Margaret Broussard, 321-777-0839
St Cloud, FL
ga
Benjamin E. Mays Center
8307 Creek Street Jonesboro, GA 30236
Felicia Davis, executive director
Georgia Kids Against Pollution Hunter's Bay Activity Center
225 Johnson Road
Forest Park, GA 30297
John Taylor (Director)
Jennifer Giegerich
Georgia Public Interest Research Group
Atlanta, GA
Physicians for Social Responsibility/Atlanta
Ed Arnold,
Executive Director
Atlanta, GA
il
American Friends Service Committee
Chicago, IL
Beverly Area Planning Association
Chicago, IL
Bolingbrook Earth Watch
Bolingbrook, IL
Chicago Recycling Coalition
Chicago, IL
Citizen Action/Illinois
Chicago, IL
Citizen Advocacy Center
Elmhurst, IL
Coalition for Consumer Rights
Chicago, IL
Community Action Group
Chicago, IL
Community Renewal Society
Chicago, IL
Crossroads Christian Youth Center
Big Rock, IL
Delta Institute
Chicago, IL
Human Action Community Organization
Harvey, IL
Illinois Audubon Society
Danville, IL
Illinois Center for Citizen Involvement
Champaign/Urbana, IL
Illinois Citizen Action
Libertyville, IL
Illinois Public Interest Research Group (Illinois PIRG)
Chicago, IL
Illinois Student Environmental Network
Champaign/Urbana, IL
Jensen Environmental Management
Glen Ellyn, IL
Lake County Conservation Alliance
Grayslake, IL
League of Women Voters of Illinois
Chicago, IL
Lyons Incineration Network
Lyons, IL
MCS: Health & Environment
Evanston, IL
Metro Seniors in Action
Chicago, IL
National Council of Jewish Women
Prairie Sun Consultants
Naperville, IL
Protestants for the Common Good
Chicago, IL
Save the Prairie Society
Westchester, IL
Sheil Center
Chicago, IL
South Austin Coalition
Chicago, IL
South Cook County Environmental Action Coalition
Blue Island, IL
South Suburban Citizens Opposed to Polluting Our Environment
Chicago Heights, IL
in
Valley Watch, Inc.
John Blair, President
Evansville, IN 47713
Save the Dunes Council
Michigan City, IN
South Bend-Elkhart Audubon Society
South Bend, IN
Knob and Valley Audubon Society
New Albany, IN
la
Susan Spicer Owner/Chef
Bayona Restaurant
New Orleans, LA
Patrick Singley, Owner
Gautreau's Restaurant
New Orleans, LA
John Harris, Owner/Chef
Lilette Restaurant
New Orleans, LA
Gulf Restoration Network
Cynthia Sarthou, Executive Director
New Orleans, LA
Citizens for a Clean Environment
Bill Herke, Ph.D.
Board Member and AFS Certified Fisheries Scientist
Rene Bajeux, Owner/Chef
Bingo Starr, Chef
Rene Bistrot Restaurant
New Orleans, LA
Margaritaville Cafe
New Orleans, LA
The Alliance for Affordable Energy
Micah Walker, Program Director
New Orleans, LA
Informed Choices
Nancy Hirschfeld, President
Slidell, LA
Citizens Against Hazardous Waste Clarence Chandler
DeQuincy, LA
Louisiana Environmental Action Network (LEAN)
Marylee Orr, Executive Director
Baton Rouge, LA
me
Natural Resources Council of Maine
Sue Jones, Air and Energy Project Director
Augusta, ME
ma
Clean Water Action/Fund
Brian Carlson Energy/Climate Organizer
Boston MA 02108
Frank Gorke
Massachusetts Public Interest Research Group
Boston, MA
mi
American Lung Association of MI 25900
Greenfield, Suite 401
Oak Park, MI 48237
Michigan Environmental Council 119
Pere Marquette Drive, Suite 2A
Lansing, MI 48912
National Environmental Trust
Vicki Levengood
Lansing, MI
ACCESS
2651 Saulino Court
Dearborn, MI 48120
Sierra Club
3423 Charing Cross Road
Ann Arbor, MI 48108
Ecology Center
117 N. Division St.
Ann Arbor, MI 48104
MI Council of the Environment and Jewish Life
Bloomfield Hills, MI
West Michigan Environmental Action Council
1514 Wealthy St., SE, Suite 280
Grand Rapids, MI 49506
East Michigan Environmental Action Council
21220 West 14 Mile Road
Bloomfield Hills, MI 48301
League of Conservation Voters
Ann Arbor, MI
League of Women Voters of Michigan
200 Museum Drive, Suite 104
Lansing, MI 48933-1997
Grey Panthers
Huron Valley
Arthur Parris
2115 Nature Cove Court, Apt. 106
Ann Arbor, MI 48104
SWDEV
Detroit, MI 48209
Catholic Archdioces
305 Michigan Ave.
Detroit, MI 48226-2605
National Wildlife Federation
Great Lakes Field Office
213 W. Liberty, Suite 200
Ann Arbor, MI 48104-1398
Brian Imus
PIRGIM
Ann Arbor, MI
mo
Learning Disability Association of Missouri
Springfield, MO
Citizens for Missouri's Children
St. Louis, MO
Shannon Baker
Missouri PIRG
St. Louis, MO
mn
Clean Water Action Alliance of MN
Patience Caso, Water Program Coordinator
Minneapolis, MN
Rochester's Energy Future Coalition
Gael Entrikin
Rochester MN
Mankato Area Environmentalists
Sister Gladys Schmitz, SSND
Mankato, MN
Izaak Walton League of America, Minnesota Division
Steve McNaughton, President
St. Paul, MN
Friends of the Boundary Waters Wilderness
Sean Wherley
Policy and Education Coordinator
Minneapolis, MN
St. Croix River Association
Richard Meierotto Board of Directors
Afton, MN
Mississippi Corridor Neighborhood Coalition
Amy Luesebrink and Randy Kouri, Co-Presidents
Minneapolis, MN
St. Croix Valley Interstate Group, Sierra Club
Kathleen Vollmer, Executive Committee Member
Stillwater, MN
Environmental Association for Great Lakes Education (EAGLE)
Craig Minowa, Technical Director
Duluth, MN
nc
Appalachian Voices
Scott Gollwitzer, Staff Attorney/Clean Air Campaign Coordinator
Asheville, NC
North Carolina Public Interest Research Group
Elizabeth Ouzts
Chapel Hill, NC
nj
New Jersey Environmental Lobby
Marie A. Curtis
Executive Director Trenton, NJ
New Jersey Public Interest Research Group
Dena Motolla
Trenton, NJ
ny
Environmental Advocates of New York
Val Washington
Executive Director
Albany, NY
oh
Ohio Environmental Council
Kurt Waltzer
Clean Air Program Coordinator
Columbus, OH
Ohio Public Interest Research Group
Amy Simpson
Cleveland, OH
pa
Joseph Otis Minott Executive Director
Clean Air Council
Philadelphia, PA
PennEnvironment
David Masur
Philadelphia, PA
ri
Childhood Lead Action Project
Roberta Hazen Aaronsen
Innovative Product Systems
Len Pichea, President
A Wish Come True
Lee Green
Rhode Island Public Interest Research Group
Kate Strouse-Canada
Clean Water Action
Sheila Dormody, RI Director
sc
SC Wildlife Federation
2711 Middleburg Drive, Suite 104
Columbia, SC 29204
SC Environmental Watch
Rainie Jueschke
Columbia, SC 29202
State Rep. Joe Neal
309B Blatt Bldg.,
Columbia, SC 29211
SC Department of Natural Resources
Charlie Moore
Rembert C. Dennis Building 1000 Assembly Street
Columbia, SC 29201
SC Nurses Association
1821 Gadsden Street
Columbia, SC 29201
tn
Tennessee Environmental Council
Will Callaway, Executive Director
Nashville, TN
Southern Alliance for Clean Energy
Stephen Smith, Executive Director
Knoxville, Tennessee
tx
Friends of the Sabine
Richard LeTourneau, Chairman
Longview, Texas
Texas Environmental Democrats
Darby Riley, President
San Antonio, Texas
Galveston--Houston Association for Smog Prevention (GHASP)
John D. Wilson, Executive Director
Houston, TX
Texas Black Bass Unlimited
Ed Parten, President
Texas Association of Bass Clubs
SMART (Sensible Management of Aquatic Resources)
John Spicer
Long Supply Company
April Plaza Marina and Hotel
Ron Werner, Owner
Fly Angler's Edge
Kenny Murph, Manager
Honey Hole Fishing Magazine
Jerry and Debra Dean, Owners
ut
American Lung Association of Utah
1930 South 1100
East Salt Lake City, UT 84106-2317
American Cancer Society
941 E. 3300 S
Salt Lake City, UT 84106 (801)483-1500
Wasatch Clean Air Coalition
Salt Lake City, UT
Dr. Richard E. Kanner
Director of the Pulmonary Function Lab at the University of
Utah; former member and Chairman of the Utah Department of
Environmental Quality's Air Quality Board
J.E.D.I. WOMEN
352 South Denver St. (440E) Suite 260
Salt Lake City, Utah 84111
Save our Canyons
68 South Main Street, 4th floor
Salt Lake City, UT 84101
Utah River Keepers
Salt Lake City Council Member Nancy Saxton
451 South State Street
Salt Lake City, Utah 84111
Utah State Representative Mark Litvack
181 East Edith Avenue
Salt Lake City, Utah 84111
Professor John Veranth
Research Assistant Professor of Pharmacology and Toxicology
University of Utah Health Sciences Center 50 North Medical
Drive
Salt Lake City, Utah 84132
Utah State Representative Jackie Biskupski
753 East Roosevelt Avenue
Salt Lake City, Utah 84105
Wayne Samuelson, M.D.
University of Utah School of Medicine 308 Park Building
Salt Lake City, Utah 84112
Great Salt Lake Audubon
P.O. Box 520867,
Salt Lake City, Utah 84152-0867
Families Against Incinerator Risk
165 South Main Street
Salt Lake City, UT 84111
HEAL UTAH
68 S Main St, Suite 400
Salt Lake City, UT 84101
wa
Washington Toxics Coalition
Seattle, WA
Northwest Energy Coalition
Seattle, WA
Washington Physicians for Social Responsibility Environment and
Health Committee,
Seattle, WA
Washington Association of Churches
Seattle, WA
RE Sources
Bellingham, WA
Coalition For Environmentally Safe Schools
Olympia, WA
Lutheran Public Policy Office
Tacoma, WA
Seattle Audubon Society
Seattle, WA
Dr. Don Johnson
Okanogan County PUD Commissioner
Okanogan, WA
Transportation Choices Coalition, Spokane Chapter
Spokane, WA
NW Sustainable Energy for Economic Development
Seattle, WA
wi
Trout Unlimited--Fox Valley Chapter Tom Deer, President
1271 Maple St.
Neenah, WI 54956
Trout Unlimited--Oconto River Chapter
Dave Brunner
5473 Cardinal Rd.
Gillett, WI 54124
Wisconsin Conference of the United Methodist Church
Reverend Dave Steffenson, Ph.D., Eco-Justice Coordinator,
Board of Church & Society PO Box 21
Columbus, WI 53925
Lutheran Office for Public Policy
Reverend Sue Moline-Larson
322 E. Washington Avenue
Madison, WI 53703
Family Farm Defenders
John Peck, Executive Director
PO Box 1772
Madison, WI 53701
Lake Superior Greens
Jan Conley
2406 Hughitt
Superior, WI 54880
River Alliance of Wisconsin
Diana Toledo, Acting Director
306 E. Wilson Street
Madison, WI 53703
Citizens Utility Board
Steve Hinicker, Director
16 N. Carroll Street
Madison, WI 53703
Melissa K. Scanlan
Executive Director
Midwest Environmental Advocates 702 East Johnson Street
Madison, Wisconsin 53703
Laura Olah
Executive Director
Citizens for Safe Water Around Badger
E12629 Weigands Bay S
Merrimac, WI 53561
Bob Olsgard
Lake Superior Waterkeeper
The Lake Superior Alliance
Spooner, WI
Senator Jeffords. I would also like to place into the
record a letter from a coalition of public health and
environmental organizations stating their support of the
current Clean Air Act.
Senator Voinovich. Without objection.
[The information referred to follows:]
Americans for Clean Air
May 7, 2003.
The Honorable James Inhofe, Chair,
Committee on Environment and Public Works
U.S. Senate
Washington, DC 20510
The Honorable Billy Tauzin, Chair,
Committee on Energy and Commerce
U.S. House of Representatives
Washington, DC 20515
Dear Chairman Inhofe and Chairman Tauzin: For over three decades, the
Clean Air Act has worked to improve public health and protect the
environment. We, the undersigned health, senior's, religious, labor,
civil rights, children's, parent's, women's, consumer and environmental
organizations strongly support the Clean Air Act and vigorously oppose
legislation that will weaken or delay the implementation of the law.
The Clean Air Act is working. By enforcing the law, air pollution
levels have dropped at the same time the nation's economy has grown
dramatically. The Clean Air Act amendments that you have introduced at
the request of the administration would disrupt this progress, harm
public health and worsen global warming. If the Clean Air Act is
changed, it should be strengthened, not weakened.
Today, the Clean Air Act is designed to protect the health of all
Americans. Pregnant women, children, people with heart disease and lung
diseases (such as asthma and emphysema), seniors and other populations
at risk for diseases like cancer must be protected from the harmful
effects of poisonous mercury in our waters, toxic air pollution, smog
and soot. America's National Parks and other unique landscapes must be
protected from air pollution, haze and irreversible damage to our
environment.
The Clean Air Act sets strong standards to cut pollution from power
plants and other industrial sources to meet the health-based air
quality standards for soot and smog. Power plants are required to
sharply reduce their sulfur and nitrogen emissions by the end of this
decade. Current law also requires power plants to install state-of-the-
art technologies that will deeply cut mercury contamination by 2008.
The Bush Administration's air pollution proposal weakens the Clean
Air Act in several important ways. The bill delays deadlines to meet
the health standards and relaxes pollution reduction requirements for
power plants and other major pollution sources. The proposal repeals
the requirement for power plants to install state-of-the-art pollution
controls to reduce toxic mercury emissions. Critical states' authority
to set strong clean-up standards is repealed. The plan also makes
global warming worse by allowing carbon pollution to increase.
The current Clean Air Act provides critical tools that the states
and the Environmental Protection Agency can use to achieve clean air.
Please do not weaken industry's responsibility to clean up power plants
and other smokestacks. Do not postpone the requirements to meet health-
based standards. Do not diminish the rights of downwind states to
protect themselves from pollution produced outside their borders.
All Americans have a right to breathe clean, healthful air. That is
the promise of the landmark Clean Air Act. This promise should never be
broken.
Sincerely,
Alpha-1 Foundation.
American Association of People with Disabilities.
American Cancer Society.
American Heart Association.
American Lung Association.
American Public Health Association.
American Thoracic Society.
Asthma and Allergy Foundation of America.
Breakthrough Technologies Institute.
Center for International Environmental Law.
Central Conference of American Rabbis.
Children's Environmental Health Network.
Citizens Coal Council.
Citizens for a Better Environment.
Clean Air Task Force.
Clean Air Trust Education Fund.
Clean Water Action.
Clear The Air.
Climate Solutions.
Coalition on the Environment and Jewish Life (COEJL).
Consumer Action.
Defenders of Wildlife.
Environmental Defense.
Environmental Defense Center.
Environmental Integrity Project.
Friends Committee on National Legislation.
Friends of the Earth.
Green House Network Greenpeace.
Healthy Schools Network.
International Primate Protection League.
Kids Against Pollution.
League of Conservation Voters.
League of United Latin American Citizens.
League of Women Voters of the United States.
National Adult Day Services Association.
National Association for the Advancement of Colored People (NAACP).
National Association of the County and City Health Officials.
National Audubon Society.
National Consumers League.
National Council on the Aging.
National Environmental Trust.
National Parks Conservation Association.
National Wildlife Federation.
Natural Resources Defense Council.
OMB Watch.
Our Children's Earth Foundation.
The Ocean Conservancy.
Physicians for Social Responsibility.
Presbyterian Church (USA) Washington Office.
Public Citizen.
Public Employers for Environmental Responsibility.
Religious Action Forum.
Sierra Club.
Trust for America's Health.
Union of American Hebrew Congregations.
Union of Concerned Scientists.
United Church of Christ Justice and Witness Ministries.
United Methodist Church General Board of Church and Society.
United Steelworkers of America.
U.S. Environmental Watch.
U.S. Public Interest Research Group.
Wildlands CPR.
Women's Environment and Development Organization.
Women's International League for Peace and Freedom.
Woman's National Democratic Club.
Working Assets.
20/20 Vision.
Senator Jeffords. Finally, most projections indicate that
new electricity generation will come largely from natural gas
for mainly economic reasons. Most of that generation will be
for peaking power and those natural gas facilities that are new
baseload will be replacing older, inefficient natural gas-fired
plants and not replacing coal.
According to the testimony of today's witnesses and the
experts in the natural gas industry, there will be plenty of
natural gas to meet the projected growth of demand for
electricity but if coal wants to expand its market share beyond
the current 55 percent it now enjoys and really grow, then the
test is simple, produce power that meets public health and
environmental needs of America today and into the future.
Thank you, Mr. Chairman.
Senator Voinovich. Thank you, Senator Jeffords.
Mr. McSlarrow, we apologize for holding you up this
morning. We had a very important vote in the U.S. Senate that I
was particularly interested in, the legislation to open up NATO
to seven new nations. It is a historic day for those nations
and for our country and the future of NATO organizations. I
apologize for not getting started on time.
We are very happy to have you here today and look forward
to your testimony.
STATEMENT OF HON. KYLE E. MC SLARROW, DEPUTY SECRETARY, U.S.
DEPARTMENT OF ENERGY
Mr. McSlarrow. Thank you, Mr. Chairman.
With your permission, I would like to briefly summarize my
testimony and submit it in full for the record.
I am pleased to appear before you today to discuss the
Administration's National Energy Policy and to discuss why we
think Clear Skies is a critical component as you said of the
President's strategy to confront both our energy and
environmental challenges. We are pleased the Senate is now
considering a comprehensive energy bill and commend Chairman
Domenici and the members of his committee for acting so
swiftly. We commend you, Mr. Chairman and this committee for
moving aggressively to consider the Clear Skies legislation.
The Nation's demand for electricity is projected to grow
significantly over the next 22-25 years. Between now and 2025,
the United States will likely have to add between 446 and 665
gigawatts of new generating capacity to meet growing demand.
This is equivalent to adding the entire power generation sector
in Germany and Japan combined to the U.S. power grid.
Concurrently, with this expansion of the Nation's power fleet,
power generators will also be called upon to make new
investments in pollution control technologies to meet
tightening environmental standards.
Over the past 25 years, America's electricity utility
industry has invested billions of dollars in advance
technologies to improve the quality of our air. In terms of
long term energy trends, we long ago ceased to fully provide
for our petroleum needs domestically and though most of our
natural gas demand can be met with North American production,
the trend here is also toward a greater share of imported
natural gas. Coal, our most abundant energy resource, is
actually projected to reduce its percentage share of
electricity generation.
President Bush recognized that to prevent these problems
from becoming a permanent feature of American life, we needed a
long term plan. President Bush's National Energy Policy
released in May 2001 reflected a few fundamental principles.
First, we need to maintain a diversity of fuels from multiple
sources. Second, we should seek opportunities for increased
investment trade, exploration and development which are
increasing every year far beyond the traditional markets of the
last 50 years. Third, we should focus research and development
on initiatives that seek long term solutions to our energy
challenges as we have done with energy efficiency, renewable
energy, hydrogen, fusion and nuclear energy as well as the
recently announced zero-emission FutureGen coal project.
The National Energy Policy also highlighted the growing
need for attention to the Nation's electricity markets and
infrastructure. We strongly believe that Clear Skies is a key
component to meet that goal as is a comprehensive energy bill
that includes a sound electricity title to modernize our
wholesale electricity markets. A well functioning, wholesale
market brings its own rewards. As confidence is gained that the
system is reliable and capable of coping with the high demand
for electricity, there will increasingly be less need for
restrictive and prescriptive regulation. That is the point when
much needed investment is likely to be attracted--investment in
new technologies and improved generation and transmission
facilities that produces additional energy and environmental
benefits.
When the opposite is true, when uncertainty reins, when
reliability is questioned, when prices seem detached from
market forces, investment vanishes. The present uncertainty in
the wholesale electricity market is not simply affected by
policy choices that center on transmission assets and market
designs. The uncertainty extends to the generation of
electricity itself and that is why it is so important to
provide greater regulatory certainty about the kinds of
investment choices the generating industry will have to make
over the next two decades. We believe the Clear Skies proposal
does just that.
It is difficult to quantify what the cost to our energy
impacts will be if multi-pollutant legislation is not enacted.
The Energy Information Administration from which most of our
numbers are drawn, the EIA baseline, includes all future
legislation and regulations that have been specified or enacted
but does not include regulations not yet promulgated.
Therefore, we know in the absence of this legislation before
the committee, mercury regulations will be promulgated by
December of next year but we do not know what those regulations
will be. We can anticipate that additional regulations on
SO<INF>2</INF> and NOx will be required but we do not know what
those regulations will be either. We can anticipate additional
regulations to reduce regional haze, but again, we don't know
what they will be.
What we should be concerned with is this. Uncertainty,
delay and litigation which are the chief hallmarks of the
current process under the Clean Air Act are not likely to
produce greater environmental benefits but instead are likely
to lead to more costly solutions and risk affecting the energy
fuel mix in ways that are unwarranted and unforeseen. Although
we have not contrasted Clear Skies to this unknown regulatory
future, we have compared it to a future predicated on current
control programs.
Under Clear Skies natural gas consumption, which is
currently projected to increase to about 35 trillion cubic feet
in 2025 increases to 36 trillion cubic feet, 1 tcf additional.
However, we do not project that a significant change in natural
gas supply is needed due to the implementation of Clear Skies.
Wellhead natural gas prices follow the baseline pattern after
decreasing from the unusually high prices that occurred in
2001.
Clear Skies helps maintain coal as an important fuel
source, thereby avoiding excessive pressure on natural gas
prices. In our baseline, coal consumption would increase about
38 percent through 2025. Under Clear Skies, it increases to a
lesser extent but still an increase of 26 percent. EIA also
projects electricity prices will lower throughout the
projection period for both the baseline scenario and under
Clear Skies. The effect of emission reductions is roughly a 0.3
cents per kilowatt hour price increase.
In closing, one of the concerns we have is the ever
increasing reliance on natural gas. Because our marginal supply
of natural gas will increasingly come imported liquefied
natural gas, we should be concerned that we not place too much
stress on the natural gas supply by forcing a level of fuel
switching from coal to gas that leads to higher volatility and
higher prices. Natural gas supply as a low cost, reliable
source of electricity is not automatic. One only has to witness
the winters of 2000, 2001 and the one we just experienced to
see the point. It is therefore critically important that we
maintain a balanced, diversity of fuels to provide low cost and
abundant electricity. The key to this is that we not assume
that all policy objectives can be achieved simply by unlimited
reliance on natural gas.
Thank you.
Senator Voinovich. Again, we want to thank you for being
here this morning.
I understand the Natural Petroleum Council is currently
working on a natural gas report that was requested by Secretary
Abraham last year. This report follows a similar report issued
by the NPC in 1999 which I will, without objection, enter into
the record.
[The document is printed in the appendix to this hearing
record:]
Senator Voinovich. Can you give us any idea of the scope of
that report and when it is going to be released?
Mr. McSlarrow. I believe the target for release is
September. The scope of the report is much the same as the 1999
report which is a comprehensive look at both the supply and the
demand side of the natural gas equation, as well as a look at
technologies for exploration and production.
The reason it was asked for is because as you know there is
a significant debate going on right now in the natural gas
industry about the future of supply and demand in this country.
There are increasing concerns about whether or not and to what
extent we are going to meet our needs with domestic or at a
minimum, North American production. I can't tell you at this
point obviously the conclusions of that report will be. I have
been briefed on interim analyses but I would say this. Nothing
I have seen right now leads me to any other conclusion than
that we have a looming problem in natural gas supply.
Senator Voinovich. What does the Administration believe are
the potential effects on our manufacturing sector of any policy
or legislation that will result in massive fuel switching from
coal to natural gas? Have you calculated what impact that would
have on the economy of this country?
Mr. McSlarrow. I am unaware.
Senator Voinovich. For that matter, what is already
happening?
Mr. McSlarrow. I am unaware of a calculation but I will go
back and check and see if EIA has something and something for
you for the record. There is no question that those industries
with huge variable fuel costs, particularly with what has
happened in natural gas, experience a huge crunch. If we have
quantified it, I will get that to you.
Senator Voinovich. It is interesting because last week I
had the man who is in charge of Bayer in the United States,
with 22,000 employees in the U.S., who fundamentally said the
cost of natural gas here was so much higher than it is in
Europe and frankly, he was giving consideration to moving some
of his operations back to Europe because of the high cost of
natural gas. They are competing with these products in the
global marketplace.
Who would have information on that type of thing, the
Department of Commerce or who?
Mr. McSlarrow. It is possible the Department of Commerce
and also it is possible that our Energy Information
Administration would have that as well as manufacturing groups
themselves. We will do some research and get back to you.
Senator Voinovich. I would like to find out if there is
anybody monitoring this at all in the Federal Government and we
can get some statistical information.
Mr. McSlarrow. There is usually a statistic for everything
in the government, so I am sure it is there.
Senator Voinovich. an article in the Akron Beacon Journal
last Sunday, which I will without objection enter into the
record.
[The information referred to follows:]
[From the Akron Beacon Journal, May 4, 2003]
Natural Gas Outlook: Costly
(By Jim Mackinnon)
This past long, cold winter, if followed with a long, hot summer,
may leave Northeast Ohio natural gas users more under the weather than
usual.
Natural gas supplies, already sharply depleted by a frigid winter
that drove up heating usage, will come under even more pressure if
prolonged hot weather this summer causes natural gas-powered
``peaking'' electric plants to fire up more than usual to meet air-
conditioning demand. Those plants use a lot of natural gas and may be
needed for sustained periods just when gas companies want to fill their
underground storage systems ahead of next winter.
And it looks like Mother Nature may not provide much help. The
latest National Weather Service long-range outlook says it is likely
much of the Nation will have above-normal temperatures this summer.
The result may be higher-than typical prices for natural gas users,
though producers and sellers such as Dominion East Ohio say we won't
have to worry about running out of the fuel.
``This past winter is going to have a lot of repercussions,'' said
Jeff Murphy, director of pricing and regulatory affairs for Dominion
East Ohio. ``All things considered, we're seeing a lot of upward
pressure on prices.''
Basically, that means tight supply, low production and increasing
demand.
And while that may be good for natural gas producers, it's not for
those who buy gas.
The latest Federal information shows 741 billion cubic feet of
natural gas in underground storage nationally as of April 24--well
below the more than 1.6 trillion cubic feet stored in the same period a
year ago. The 5-year average of natural gas storage for this time of
year is about 1.3 trillion cubic feet, according to the Energy
Information Administration.
To get some idea of how weather can play havoc with natural gas
supplies as well as household heating bills, look at Dominion East Ohio
customers.
They burned a lot more gas on average this past winter than during
the previous year, Dominion East Ohio spokesman Neil Durbin said.
The average Northeast Ohio household from December 2001 through
February 2002 burned 42.3 thousand cubic feet of gas, he said. From
December 2002 through February this year, that average household burned
63.5 thousand cubic feet of gas, he said.
The end result: Way less natural gas left in underground storage by
the time spring arrived.
``We're going to have to scramble to put gas in the ground. That
will keep gas prices high,'' said Chuck Faber, director of corporate
development for Twinsburg-based natural gas and oil explorer North
Coast Energy Inc. The natural gas industry will want to have about
three trillion cubic feet of gas stored in time for next winter to be
comfortable, he said.
``We could see $7 (wholesale natural) gas in the summertime,''
Faber said. The wholesale price now is about $5 per thousand cubic
feet. Residential customers pay more--there are taxes, and utilities
tack on additional charges for transporting and delivering the gas to
households, which is where they make their profit.
There could be price spikes, too, if hurricanes temporarily shut
down natural gas production platforms in the Gulf of Mexico, Faber
said.
Gas producers have been increasing well drilling, but North Coast
and other companies remain reluctant to ramp up production
dramatically, Faber said. The cost of drilling a 4,000-to 5,000-foot-
deep well is between $160,000 to $180,000, while a 10,000-foot well can
cost between $1.5 million and $2 million, he said.
In addition, it's been harder for drillers to get financing to put
in new wells, said FirstEnergy Corp. spokeswoman Kristen Baird. The
Akron utility produces, buys and sells natural gas for its own gas-
fired peaking plants as well as for retail customers.
``We anticipate pricing will continue to be on the high end,''
Baird said.
The Energy Information Administration reports that natural gas
production in the U.S. fell by 2.6 percent last year, but should
increase by 1.5 percent this year. Even so, demand is expected to
increase by 2.7 percent this year compared to last.
``The big gas wells are being depleted,'' said Peggy Laramie,
spokeswoman for the American Gas Association, which represents the
natural gas utility industry.
Because of supply and demand imbalances, the association feels that
natural gas prices are going to fluctuate a lot more than they did in
the late 1990's, Laramie said. To increase supply, the association and
its members are lobbying the Federal Government to relax regulations
and allow them to drill for natural gas in places now off limits to
them.
The Federal Government, meanwhile, is looking to ensure that
companies don't engage in price fixing or other illegal means to boost
prices and profits.
It's not all bad news for consumers out there.
John Tobin of the Colorado-based Energy Literacy Project said North
America gas supplies are vast. But while the supply is there, getting
it to customers by drilling and putting it in pipelines is proving more
difficult, he said.
Tobin said he thinks competition from lower petroleum prices will
help moderate natural gas prices. Energy sources have to compete
against each other, he said.
But Faber at North Coast Energy said his outlook is that natural
gas will trade and sell at a premium relative to oil, even though
traditionally oil has been more expensive than gas. Part of that has to
do with the increased demand for gas, which burns more cleanly than
oil, and the ability of oil to be more easily transported, he said.
Wellhead prices--basically, wholesale prices--are well down from
their peaks in February and early March.
Nationally, the wellhead price of natural gas in the 2002-2003
winter heating season averaged $4.44 per thousand cubic feet, $2.08
more than the previous winter, according to Federal data.
But don't expect to see the return of $2 per thousand cubic feet
wellhead prices, energy analysts and others said. They estimate
wellhead natural gas will range between $4.50 and $5.50 per thousand
cubic feet through at least the summer and probably into 2004.
For huge industrial consumers of natural gas, the higher costs eat
away at profits.
Besides its use in heating buildings and making electricity,
natural gas is a key component for fertilizer makers, polymer companies
and the steel industry.
The Timken Co. burns about 8 billion cubic feet of natural gas a
year, said Peggy Claytor, senior government affairs specialist for the
Canton maker of bearings and specialty steel. Claytor, the company's
former energy purchaser, specializes in energy and environment issues
for Timken.
About 92 percent of the gas Timken uses is used to heat treat
bearings and steel, with the remainder used for such things as heating
boilers, she said.
While Timken and other companies can hedge the financial costs of
gas, they often have to eat the higher energy costs, she said,
``You do not have the luxury of shutting down (a plant) because you
have customer obligations to meet,'' Claytor said.
The higher prices have been a strong incentive for Timken and other
companies to become more energy efficient, she said. Timken's changes
have lowered the its natural gas consumption by 34 percent, she said.
The recession and slow economic growth have also moderated natural
gas prices by reducing industrial and business demand, she said.
``An economic recovery will put more pressure on prices,'' Claytor
said. ``In a sense, we are fortunate that our economic recovery has
been anemic.''
Senator Voinovich. Highlights the pressures placed on
natural gas supplies by the frigid winter that we had in Ohio
and notes that the National Weather Service is predicting that
much of the Nation will have above normal temperatures this
summer. If hot weather this summer causes natural gas power
plants to operate at higher than average levels, what impact
will that have on our natural gas supplies and prices?
Mr. McSlarrow. It will have a huge impact. We have a
problem right now. We are coming out of a season in which we
had low storage. This is the time when you traditionally build
storage all the way through the summer to get ready for the
next winter heating season. The last numbers I saw were that we
were about 700 billion cubic feet in storage which is about 500
billion cubic feet below the 5 year average.
If we have a hot summer and natural gas is consumed in
greater amounts for the generation of electricity for air
conditioning and the like, we are going to go into the next
winter even lower than we did the last. That puts us at risk
for a lot more higher and volatile prices.
Senator Voinovich. We have been joined by Senator Carper.
Senator, would you want to make a statement or ask Mr.
McSlarrow some questions?
Senator Carper. Is Senator Jeffords next in line to ask
questions?
Senator Jeffords. Yes, but I will defer.
Senator Carper. Let me defer to you and then I have some
welcoming comments for Mr. McSlarrow. I have just had an
exciting train ride from Delaware this morning. I want to calm
down just a little bit before I say anything.
Senator Voinovich. Senator Jeffords?
Senator Jeffords. I just have one question. How many coal
plants does the Administration project are going to switch to
natural gas due to the environmental regulations over the next
10 years?
Mr. McSlarrow. I don't have a number off the top of my
head. We will get that for the record.
Senator Jeffords. I would appreciate that because obviously
this is a very difficult question in the sense of the future of
this country and our energy costs.
Senator Voinovich. Senator Jeffords, I can say this to you.
All of the new powerplants in Ohio that have been built, and
there have been a lot of them, are all fueled by natural gas.
Senator Carper?
OPENING STATEMENT OF HON. THOMAS R. CARPER, U.S. SENATOR FROM
THE STATE OF DELAWARE
Senator Carper. I have calmed down.
Deputy Secretary McSlarrow, how are you doing?
Mr. McSlarrow. Very well, Senator.
Senator Carper. Glad you are here and glad you are in your
position.
I get to come over and spend some time with your boss this
afternoon. I am looking forward to that as well. It has to be a
busy time for you with the energy bill coming to the floor. A
good deal of what we will discuss there actually has some
ramifications for what we are covering here as you know.
I have introduced, along with Senator Chafee and Senator
Gregg, legislation to attempt to slow the growth of emissions
of CO<INF>2</INF> principally from our utilities in this
country. I did not have a chance to hear your testimony this
morning but I am mindful of the concern that some have raised
and I hear a little here today about if we adopt a fourth
pollutant, address CO<INF>2</INF> in clean air legislation this
year, we will exacerbate the shift from coal to natural gas.
Let me say by way of a disclaimer, I know I am the only
United States Senator who was born in West Virginia and I still
have a lot of family there and a lot of affection for that
State and its economy. It is not driven entirely by coal but it
is still a major part of the economy of my native State. I am
not interested in doing anything that is going to harm that
industry or West Virginia, for that matter.
I just heard the chairman say in Ohio all the new utility
plants that have come on line of late have been natural gas in
nature. I think the same is true in Delaware. That has happened
with a three pollutant bill. It just happened because of
concern of States and industry to clean up the air. For the
most part, it is easier and maybe cheaper for them to move
toward natural gas than coal.
I want to make a couple of points and I would be interested
in your thinking on this as well. There is a fair amount of
uncertainty within the investment community on whether or not
they ought to invest in utilities that are making major
investments in coal-fired plants. We have heard testimony about
the emissions from clean coal technology that are really just
as good as what you are going to find in natural gas-fired
plants but there is a reluctance on the part of investors to
invest in companies or utilities that are going to bring those
on line because they don't know if we are going to pass a 3-P
or 4-P bill. They don't know if it is going to be a market
driven system, will there be caps and trades available, and are
just uncertain of the nature of what we are going to do
legislatively and what you will be doing regulatorily. Are we
going to make any changes in new source review. There is a lot
of uncertainty.
One of the reasons why I am interested in a 4-P bill that
addresses carbon dioxide is I want to provide some certainty. I
want to provide some certainty to the utilities and I want to
provide some certainty to the investors as well.
I have seen information that suggests if our legislation,
the legislation that Senators Chafee, Gregg and I have
introduced, were to become law there would be I am told a 3
percent further shift from coal to natural gas. I don't want to
even see that.
That is a round about way of asking this question. Let's
talk about the willingness of investors to invest in clean coal
technology and how that willingness might be driven, increased,
enhanced by some certainty with respect to what we are going to
be doing on new source review and whether or not we are going
to be regulating carbon.
Mr. McSlarrow. There is no question that certainty is in
some ways at the center of much of the debate and at the center
of much of the concern, both in terms of those who would invest
in utilities and in particular kinds of plants and those who
actually have to operate them and those who have to produce
fuels.
My initial point would be we can provide certainty about
passing Clear Skies, that would provide certainty, but to be
fair to the question you asked, I think we really do have a
concern. The numbers I have seen on your bill are a little
larger in terms of the fuel switching but I also understand you
just introduced a new version, so it's possible there is a
difference between last year and now.
This is about marginal costs. This entire energy debate
whether natural gas, coal or anything else in terms of what
drives the cost of fuel in the electricity generation sector
and the more we switch to natural gas and the more we have that
effect, and there is no question that any bill that has a
carbon cap is going to have some effect in a way that 3-P bill
won't, is going to increasingly place this kind of pressure on
natural gas at a time when it's already volatile in our view,
and not very well understood as a driver of all the generation
costs for all the other fuels.
There is no question that we have uncertainty surrounding
the new source review rulemakings but again, as soon as we
complete them, we will have certainty. The great thing about
Clear Skies is that by making very clear the targets and
allowing people the kind of time to make the investment
decisions, not so much in the assets themselves but in the
technologies that can control the emissions, we think gives the
kind of confidence at least in the discussions I have had with
market analysts, then the kind of confidence that this is worth
investing in. They understand the rules of the road and are
pleading for them. They also know that they are reasonable and
achievable. I think we have a game plan right now that does
that.
Carbon caps, putting aside the entire policy debate about
carbon and focusing on energy impacts, the scary thing about
carbon caps is we don't understand the control technologies
necessary to deal with it. We do have some understanding, and
are putting a lot of money into, carbon sequestration. For
example, as you well know, the President has proposed a billion
dollar FutureGen coal plant, not just to produce electricity
and hydrogen but also to demonstrate how you can divert a
carbon stream and sequester it.
I think we need to do those things first. We have a lot of
work to do to understand how to deal with these things let
alone before you get to the policy debate of whether or not you
should deal with it.
Senator Voinovich. I'd like to point out, Senator Carper,
our third hearing will deal with emissions technology and the
issues surrounding financial stability.
Senator Carper. Great.
Senator Voinovich. What the investors have to say about the
current situation as contrasted to Clear Skies or hopefully we
will even get into talking about what Senator Jeffords offered
last year with his legislation. Do you have more questions?
Senator Carper. Maybe a point and maybe a short question.
I mentioned the numbers I have heard, 3 percent increase in
terms of shifting from coal to natural gas that might be driven
by our legislation. While I am not interested in seeing a 1
percent shift, it is not as great as some had feared.
The other number I would share is if we pass a 4-P bill or
a 3-P bill, there are going to be certain costs incurred by
generators of electricity that will be driven by that. If we
add a fourth P or add carbon to that, there are some additional
costs. The numbers we understand have been driven not by us but
by more objective people than the authors of the bill, suggest
that the additional cost to utilities would be about 2 percent.
If those numbers are indeed correct, a 2 percent additional
cost by adding a fourth P, and a 3 percent shift from coal to
natural gas, I think it is important that we figure out with
some certainty if those numbers are correct and if they are,
then we have to make the judgment of whether that is worth a
tradeoff in terms of reducing the threat of global warming and
what that poses for our country and for our planet.
My own view is those are costs that are worth assuming
given the benefit although that is one about which reasonable
people will disagree.
Let me ask you more of a personal question. Senator
Voinovich has heard me talk about this before. I was not one to
put a lot of stock in global warming for a long time. Kyoto
accords came and went and I didn't pay a lot of attention to
it. I didn't pay much attention to it until we had a couple of
researchers from Ohio State University who came to Delaware a
few years ago to receive a recognition and a major award.
The research they had done was for the last 20 years going
around the world and climbing to the top of some of the tallest
mountains in the world and measuring the disappearance of the
ice caps and charting it for the last couple decades. I sat up
and took notice. I have continued as we have gone forward since
then.
Now I am in a position where we have the opportunity to do
something about it and we have the President's proposal which
is not to address it now but to do more research. We have
Senator Jeffords' approach which is to do even more than
utilities can do in a realistic manner.
Take off your hat as Deputy Secretary of Energy and do you
think at all about global warming? Do you worry at all about
what it poses to us? Is it something that has crossed your
mind? Where are you as a human being on this one?
Mr. McSlarrow. It is hard to testify as a human being.
Senator Carper. It is hard for us to ask questions as human
beings too.
Mr. McSlarrow. Of course. I really don't know of anybody
that doesn't think about it, debate it or argue it.
Senator Carper. I think there are plenty of people who
don't.
Mr. McSlarrow. I would say this. The issue is one where I
think on a personal level and I suspect for a lot of people it
is one where you want to be right. You described a couple of
alternatives but you left one out and that is what the
President is doing on the subject. It is not like we are
standing still. We have an aggressive, 18 percent greenhouse
gas intensity reduction target in a decade.
Senator Carper. I'm sorry, say that again?
Mr. McSlarrow. An 18 percent reduction in greenhouse gas
intensity.
Senator Carper. It is an 18 percent reduction in growth and
we are not talking about cutting it below what it is this year
or next year?
Mr. McSlarrow. Right.
Senator Carper. But whatever it is going to be x number of
years from now, we are going to reduce that growth by 18
percent?
Mr. McSlarrow. Right. To the issue you raised which is
where are you in terms of what you are worrying about. I think
there is enough uncertainty about the science and on the
effects and how we deal with it. We are spending $4 billion a
year. This is what the President has requested to do the R&D on
the science and technology but in addition to that, we are
actually trying to at least put us in a position if down the
road we get some certain answers to these questions we are in a
position to deal with it.
I am comfortable with that as a human being and most
importantly as the guy who works for the President because at
the end of the day there is enough uncertainty about this that
if we go another direction and risk not your bill but other
proposals that I have seen, really devastating the coal
industry and really placing us in a position where we are
relying on natural gas which we are forecasting even without
those kinds of measures is going to be doubling in terms of the
liquefied natural gas imports we are going to have in another
20 years.
Senator Carper. Mr. Chairman, I would like to say this as
much to you as to our witness. I am a native of West Virginia
but I represent Delaware now and have lived there for over 30
years. We have a lot of farming in our State and I know you do
in Ohio. We have a lot of chemical plants, Dupont, Hercules and
others in our State and I know you do in Ohio. I am mindful of
the cost pressures that are coming to bear on those industries
as well as others because of the jump in the price of natural
gas. I am mindful of that and I know we need to keep our eye on
the availability of natural gas and the price.
We are going to have an opportunity when we debate the
energy bill over the next couple of weeks to consider things
like a natural gas pipeline from Alaska and whether or not we
should support that. We are going to have the opportunity to
actually consider whether we ought to seriously study looking
at some places off our coast for natural gas, places we haven't
looked for a while. Those are factors that need to come to this
discussion as well. I am sure they will.
Thank you. It's good to see you.
Senator Voinovich. Thank you, Mr. McSlarrow. Thanks for
being here.
Mr. McSlarrow. Thank you, Mr. Chairman.
Senator Voinovich. Our next panel of witnesses consists of
Mr. Jim Krimmel, President, Zaclon Chemical. Mr. Krimmel has
testified before on the spike in gas prices in 2000-2001. Our
next witnesses will be Mr. Richard Metz, Co-Executive Officer,
UNIMARK, L.L.C., Mr. Steve Thumb, Principal, Energy Ventures
Incorporated, Mr. Joel Bluestein, President, Energy and
Environmental Analysis, Inc.
I would like the witness to know that we'd like you to
limit your statements to 5 minutes. We would welcome to the
record your complete statements.
We will start this morning with Mr. Krimmel.
STATEMENT OF JAMES KRIMMEL, PRESIDENT, ZACLON CHEMICAL
Mr. Krimmel. Thank you. It is very nice to see you again.
I want to thank the subcommittee for allowing me to speak
here today. What I have to tell you is very simple. If you look
at my testimony it is very simple stuff but it is very vital as
well. It is vital to me, vital to my family, my employees and
my employees' families. It is the story of the effect of the
escalating natural gas cost on one small manufacturer, Zaclon
Inc.
Zaclon is my company. We are located in Cleveland, Ohio. We
are a producer of specialty chemicals as well as some bulk
chemicals. We sell worldwide. We are the world's largest
producer of zinc ammonium chloride galvanizing fluxes and we
sell in 19 countries. We are a small company, 35 employees,
less than $12 million in annual revenues, unfortunately. We not
only have domestic competitors but our primary competitor is
European and has been historically. Increasingly we are seeing
the Asian competitors starting to penetrate the markets we are
serving as well.
I am also currently the chairman of the Board of Directors
of the Ohio Manufacturers Association. The OMA, with its 2,500
member companies, is the voice of manufacturing in Ohio and a
vital part of the strength of Ohio's economy.
In the interest of time, I would like to the graphs I have
included. I am kind of a visual person. If you would take a
look at my first graph, it shows the energy costs for Zaclon
Inc. over the past 15 years, the company has been in existence
for 16 years. I don't know what happened to the data in our
first year. I guess we weren't very efficient in those days.
This is an interesting chart in that it shows our energy
costs, utility costs by medium, water, electricity, natural gas
and you can see by far natural gas is our highest utility cost.
You can also see that from 1999 to 2002, it shows a 63 percent
increase in our natural gas costs.
This is interesting enough but it is much more telling if
you combine it with sales. My next chart superimposes our
product sales over our total energy costs. You can see here
that despite declining sales, our total energy costs have been
increasing over the past 10 years.
The reason is largely fuel switching in my opinion coupled
with inadequate exploration of natural gas. The fundamentals of
natural gas have changed in the last 3 years. The volatility is
unbelievable. It adds a level of uncertainty in our business
that is very difficult to deal with. In the long run, as
manufacturing recovers, as it will, and additional fuel
switching occurs, the problem is only going to get worse. It is
ont going to get better. That threatens the very existence of
companies like mine, Zaclon and all 35 of our employees. It is
not a huge number of employees but to all of us who have jobs,
it is very important that we continue to be in business.
To further illustrate the changes in energy cost to Zaclon
Inc. I included a couple pie charts and the pie charts show
that in 1999, and this is true for the years prior to 1999,
energy was 10 percent of my total cost picture, raw materials
were 44 percent, labor 21 percent and all other costs amounted
to another 25 percent.
The cost structure in 2002 shows energy is now 15 percent
of my total cost. While we have been able to reduce raw
material cost to 39 percent, labor has remained roughly steady
and we haven't had to reduce people. I am trying desperately
not to have to reduce people as a way of offsetting some of the
increased energy costs. We are trying to improve efficiencies,
we are doing that but it is just not enough. As natural gas
continues to escalate, it is going to be more of a challenge
for my company and my employees.
The final chart I show is a bunch of data points, 172 data
points over 15 years of Zaclon's natural gas delivered price.
If you look at data points starting at 134, 2001, you can see
how the volatility and the price has increased, our delivered
price for natural gas.
Prior to that time, we had seasonal peaks. We had the
predictable winter peaks, some lower areas at lower prices
during the summer but since 2001, that is simply not the case.
The peaks are much higher and the average pricing is much
higher. The last peak, the end of February, our delivered price
of natural gas in March was over $11 per 1,000 cubic feet. I
basically curtailed operations, I just couldn't afford to make
product and sell it at that natural gas price.
In closing, I strongly urge you to serious consider what
you do here and how it impacts the price of natural gas because
it is so vitally important to my company and to others across
the Nation, small, medium and even large manufacturers. We
really want to keep these companies going, we want to keep the
jobs there but we need some help too.
Thank you very much.
Senator Voinovich. Mr. Metz, Senator Inhofe asked me to
welcome you as a resident of Oklahoma. I don't know whether he
had a chance to say hello to you or not when he was here. We
are glad to have you here today.
STATEMENT OF RICHARD METZ, CO-EXECUTIVE OFFICER, UNIMARK,
L.L.C.
Mr. Metz. I represent a small company, 11 employees. I have
been in the EMP side and the marketing side of oil and gas for
35 years and have concentrated over the last 10 years with the
creation of UNIMARK. Our focus and function is to help small
producers market their gas and at the same time, they will be
discussing with me where the price of gas is going and what we
can expect. As a result of that, I have tried to follow the
marketplace and help them understand what my future forecast
would be for prices or demand for gas so they can decide
whether they want to put their funding capital into drilling
additional wells and would they be able to get an economic
return over the life of those.
I, like the gentleman to the right, have put together some
graphs and included those with my testimony. If you look at
Exhibit A of that, it is a graph of the production in the U.S.
in bcf per day. Over time, we used to see a summer curtailment
or decline in the consumption, therefore we had to have a
summer curtailment or decline in the production. As additional
demands are made on gas, that summer curtailment as you can see
is going away.
Senator Carper. Would you go back and take it from the top
of Exhibit A?
Mr. Metz. Exhibit A is taking the EIA dry gas production
data that is published monthly and determining a bcf per day.
What are we producing? If you do it on a monthly basis, you get
some strange things when February comes along and that kind of
stuff. I revised the data to 1 billion cubic feet per day. This
is the U.S. dry production after they process and treat it.
That's what ends up in the pipeline to be consumed.
You can see back in the late 1980's, every summer there was
a falloff in the production because there was a falloff in the
demand. We had excess capacity. Prices reflected part of that.
As the system has gone forward, we have trouble running in
place, keeping up with our production last year because every
year, those wells that are there are declining. So you have to
add so many new wells to make up for the difference.
You can see starting in the early to mid 1990's, we are
basically running wide open 365 days a year. Statistically, the
same numbers in a table form says that since 1996, we have been
producing 97 plus percent of the total peak production each
year. So if you hiccup, you are in trouble. I am seeing that
happening.
I am marketing as for 400-500 small producers primarily in
Oklahoma. They are not curtailing gas, we are moving all the
gas they have and they are out trying to find more. On the
other hand, what is the future price going to be, what is the
demand going to be. Those things are impacting their decisions.
The energy business has been through a little turmoil in the
last couple of years starting with Enron and others that things
aren't a guarantee that what people say is going to happen will
so they are a little more conservative.
Our drilling in the last 12 to 18 months has been more
conservative and therefore, we are having trouble keeping just
our gas levels where they are.
Exhibit C is somewhat like Senator Inhofe's graph showing
where prices are and extreme volatility. When you have those
kinds of numbers going up and down, he has trouble figuring out
how he's going to market his product or make it a reasonable
amount and the producer has trouble figuring out which
prospects he should drill and will he get a reasonable return.
From that graph you can see the real deal is that people
are more concerned there is going to be enough because the
price goes up when a scarcity of the commodity. With those
kinds of volatility, I want to say in the last week the price
of gas as varied by more than 10 percent. That makes everyone
nervous.
As the Administration witness discussed, the storage levels
are extremely low. We are going to have to put in over 12
billion cubic feet a day between now and the end of October to
get back to last year's levels. You can see on Exhibit D where
we can be ready to meet the winter needs of a normal winter or
colder in some areas as we had last year. Even though we drew
down storage to the lowest levels than they have since they
started keeping this information, last winter was not an
abnormally cold winter across the U.S. Certain areas were, but
on average we were 4 percent warmer than normal. So we have a
real problem in filling up that storage. That is why we don't
have summer curtailments anymore in production.
The bottom line, the producers would like obviously to see
better prices; at the same time, they don't want those prices
to cause displacement of industry and consumers. I think the
biggest thing from the supply side is to be sure we don't make
off limits certain onshore and offshore areas that could lead
to additional production.
That is the bottom line of where I am coming from.
Senator Voinovich. Thank you.
Mr. Thumb?
STATEMENT OF STEVE THUMB, PRINCIPAL, ENERGY VENTURES
INCORPORATED
Mr. Thumb. I am Steven Thumb and I appreciate the
opportunity to present testimony before you today.
I am Energy Ventures Analysis' principal that is in charge
of their oil and gas practice and have followed and
participated in the industry for over 30 years.
You have written copies of my testimony, so I thought I
would merely go forward with some major points. I am focusing
on the impact of the proposed Clean Air requirements on the
natural gas supply sector.
First, with respect to the current status of the natural
gas supply sector, over the last 2 years, the gas supply has
been challenged to meet the Nation's natural gas demand levels.
This in turn has caused natural gas prices to reach record
levels and demand destruction in the nonelectric sectors.
For example, in the industrial sector, natural gas
consumption has declined 26 percent or 5.5 bcfd a day since
2000. Because a series of companies had to go bankrupt, idle
capacity or essentially cut back production because they can't
pass through the high cost of natural gas. In addition, the
residential customer is seeing gas supply costs increase $17
billion.
The primary reason for the situation is U.S. production is
declining and western Canada production can no longer fill the
gap. More specifically, U.S. production has been declining for
each of the last six quarters and the cumulative to date is a
3.5 bcf per day decline or 6 percent. As a way of comparison,
that is out of an average consumption for the U.S. on an
average basis of about 57 bcfd a day.
More important than this current challenge and its
associated impacts is it is not going to go away for an
extended period of time as a result of the combination of high
decline rates for existing production and the limited increases
in drilling activity. These latter two items have basically put
the industry on a treadmill to maintain production, let alone
to try and increase it.
The high decline rates of existing production in essence
have reduced the average practical well life from about 10
years in the early 1990's to about 3 years today. With respect
to the limited increases in drilling activity we have had
despite these record gas prices, two of the major reasons are
environmental restrictions and moratoria and the lack of scale
for the remaining undiscovered reserves.
Concerning the latter item, this is the reason the major
EMP firms left the shelf region of the Gulf of Mexico which
historically has been the most prolific region we have had in
the U.S. Basically, the large scale plays just aren't there. As
a result, it is becoming increasingly clear that the U.S. gas
supply sector just cannot depend on traditional sources of
supply to meet projected increases in demand.
Instead, in the longer term, U.S. gas supply sector will
have to rely on a series of emerging gas supply sources of
which I noted six in my written statement to fill any gap
between supply and demand. One of the key dilemmas with these
emerging sources of supply is that they are for the most part
very large, complex and capital intensive projects that will
require an extended timeframe to develop.
My written testimony provided several examples of the
complex and risky nature as well as the lengthy timeframe to
develop these emerging resources. Included in these examples
were industry's current delay in developing offshore eastern
Canada, the long period of time it takes to permit and build
new LNG terminals, and the fact the earliest the lower 48 will
receive Arctic gas supplies will be 2009 and that will be from
Canada's McKenzie Valley Pipeline Project.
With respect to the two Arctic gas pipeline projects,
namely the McKenzie Valley and Prudhoe Bay projects, let me
note that their combined initial capacity, net of incremental
Canadian demand, is only 1.3 bcfd a day greater than the loss
in current production levels over the last six quarters
identified in my opening comments. That is a very small
increase. The basic point is we are going to need that just to
replace what we've lost.
Senator Carper. Would you say that again? I want to make
sure I understand what you just said.
Mr. Thumb. You have two projects, one coming down from
McKenzie Bay and the other from Prudhoe Bay. Their combined
initial capacity net of what Canada will need primarily for its
heavy oil to sands projects will only be 1.3 bcfd a day greater
than the loss in production we have seen from existing in the
last six quarters.
With respect to the proposed Clean Air requirements, one of
the significant impacts of those requirements is the proposed
increases in the Clean Air requirements is that they will cause
coal-fired generation to be reduced and as a consequence, gas-
fired generation to increase. This has already happened under
existing regulations. For example this year we had closure of
the Possum Point coal plant in Virginia and the Gannon plant in
Florida both of which were replaced by gas units on the same
site. This increasing dependency on electric sector gas-fired
generation which will only serve to exacerbate the problems or
the challenge for the U.S. gas supply sector is already
happening. Electric sector gas demand has increased, 45 percent
or 4.7 bcfd a day since 1996. Of particular concern for the
U.S. gas supply sector is the accelerated timetables and the
higher emission requirements contained in some of the proposed
initiatives as both will serve to only overload an already
overloaded gas supply sector.
With respect to the increased production levels, of
particular concern to the supply sector are the carbon dioxide
limitations since the power industry has no viable control
option and as a result must rely totally on switching
generation to lower carbon containing fuels, primarily natural
gas.
Of the various clean air initiatives you all are
considering, S. 366 and S. 843 with their accelerated
timetables for emission reductions and their larger emission
reduction requirements, particularly CO<INF>2</INF>
requirements, would represent an overload for the U.S. gas
supply sector which would force the rest of the U.S. economy
into hardship.
With respect to S. 485, it also represents a challenge for
the U.S. gas supply sector. However, by eliminating the
mandatory CO<INF>2</INF> requirements that are included in the
other bills and by providing a longer implementation period for
the required emission reductions, it may be at least manageable
from a natural gas supply standpoint.
In summary, the U.S. gas supply sector is really struggling
to meet existing demand. The acceleration of the proposed Clean
Air requirements timelines and higher emission levels will only
further raise gas prices. The empirical evidence to date
clearly suggests that the net results of accelerated Clean Air
requirements would be very high gas prices with all their
attendant cost increases on the other sectors and demand
destruction within the non-electric sectors.
Thank you for your time.
Senator Voinovich. Thank you, Mr. Thumb.
Mr. Bluestein?
STATEMENT OF JOEL BLUESTEIN, PRESIDENT, ENERGY AND
ENVIRONMENTAL ANALYSIS, INC.
Mr. Bluestein. Thank you.
I have submitted more detailed testimony but for the sake
of brevity I would like to summarize the key points.
Thank you for the opportunity to testify today. My name is
Joel Bluestein, President of Energy and Environmental Analysis,
Inc. EEA has been providing energy and environmental consulting
services since 1974. Among our major areas of expertise are
analyzing and forecasting supply, demand and price of natural
gas, the impacts of regulatory policy on energy markets and
energy technologies. We have done this work for natural gas
producers, pipelines, local distribution companies, power
generators, technology developers, the U.S. Department of
Energy, the U.S. Environmental Protection Agency and other
public, private and institutional clients.
The key points of my testimony are largely what you have
heard already, the gas supply/demand balance has gotten tighter
and will remain tight; gas prices will be higher than in recent
history, perhaps significantly higher; power generation will be
the major growth sector for gas demand. All of this will happen
independent of any new environmental regulation of the power
sector. However, multi-pollutant regulation of the power sector
can be accomplished I believe without exacerbating the gas
supply/demand balance and it can be designed to reduce the gas
issue by encouraging development of new, clean and more
efficient coal and gas technologies through gradual
implementation and allocation of allowances to new plants.
There is a figure at the beginning of my testimony which
summarizes our most recent 20 year forecast of North American
natural gas prices and it shows that we expect gas prices at
the Henry Hub to average about $5.70 per million btu for the
next 2 years and decline to a level around $4.50 per million
btu in constant dollars for the remainder of the forecast. This
is substantially higher than historical prices as you have
heard.
The roots of this change reflect the tighter balance of
supply and demand for natural gas resulting in higher prices
and increased volatility. It does not mean that we are running
out of natural gas but it does mean that gas producers need to
look farther afield and spend more money to meet the demand for
gas and that is reflected in the price.
Our forecast involves a scenario that requires very large
investments of capital, a lot of positive policy decisions such
as support for Alaskan gas pipeline, development of new
drilling areas, development of LNG terminals, et cetera. If
these don't occur, then there is more upside potential than
downside on gas prices.
The question of how we can best ensure an adequate gas
supply is complex and important. It is already being discussed
in other forums as mentioned earlier and it probably needs a
lot more discussion. I think the question for today is how does
the gas supply price and supply outlook affect environmental
regulation of the power generation sector? My short answers are
that multi-pollutant regulation of NOx, SO<INF>2</INF> and
mercury should and can be accomplished without exacerbating the
gas supply balance and that multi-pollutant regulation should
and can be designed to allow and encourage a new generation of
cleaner, more efficient coal plants that will allow continued
use of coal for power generation in an environmentally sound
manner.
I think the concern that air regulations will push gas
demand for power generation inexorably until it threatens our
economy is overstated. The EPA modeling of the Clear Skies Act
and many separate mercury control scenarios does not show
significance switching from coal to gas, even though it was
done assuming much lower gas prices than we currently project.
Under our higher projected gas prices, we would expect even
less switching to gas.
While a lot of new gas generating capacity has been built
recently, in certain areas, these new gas plants actually
reduced gas consumption by replacing older, less efficient gas
generation. We have seen old gas powerplants retired in Texas
because they cannot compete with the new, more efficient gas
plants and it has been estimated that replacing all the old gas
plants in Texas with new state-of-the-art gas combined cycle
plants could reduce gas consumption for power generation in the
State by over 200 bcf per year.
Use of even more efficient combined heat and power could
make this reduction even greater and could apply in other parts
of the southwest as well as parts of the west, south and north
east. So new, efficient gas plants can be part of the solution.
At the same time, the higher gas prices go, the better the
economics of coal look. Coal plants today with SO<INF>2</INF>
and NOx controls are highly competitive in the market. New coal
plants being built are even cleaner. New coal technologies
being developed such as fluidized bed and integrated
gasification combined cycle plants are cleaner and more
efficient yet. This kind of new technology is vital to
addressing additional pollutants such as mercury or even
CO<INF>2</INF>.
Multi-pollutant programs such as proposed here will help
the development of new, clean coal technologies by providing
increased regulatory certainty and flexibility to find
effective compliance solutions.
One shortcoming of the Clear Skies Act in supporting new
technology is that the grandfathering approach to allowance
allocation disadvantages new plants in general and new coal
plants in particular. The failure to allocate allowances to new
coal plants creates a disincentive for companies to develop
these plants and drives the power sector more toward gas.
An allocation approach that includes new plants through
updating the allocation and rewards efficiency is one way to
help ensure that we can continue to rely on our substantial
coal resources. Phased implementation of emission caps is also
important for the development of new technology. Command and
control programs and cap and trade programs with large
reduction steps don't provide enough time for technology
development. On the other hand, delaying the imposition of the
regulation doesn't provide a sufficient driver for technology
development. A series of more gradual steps can jump start
technology development, keep it moving and avoid economic
disruption.
I believe that an appropriately designed, gradual cap and
trade approach could even be used to address CO<INF>2</INF>
reductions by promoting a long term, balanced mix of gas
renewables, advanced coal technology such as IGCC with
sequestration, combined heat and power and other efficiency
measures. This is illustrated in my testimony with an approach
in which the emission caps actually increases for the first
several years and then levels off and begins a very gradual
decline to an end point in 2060.
In conclusion, we do see higher gas prices in the future
regardless of what regulations are imposed on the power
generation sector. This increase and its implications need to
be addressed separately from the effect of multi-pollutant
regulations. Higher gas prices will increase the value of new,
clean, efficient coal technologies and multi-pollutant
legislation can encourage the development of these technologies
and limit reliance on gas by providing allowance allocations
for new, clean coal and efficient gas technologies through
updating and by setting gradually declining emission caps from
an early starting point.
Thank you again for this opportunity to speak.
Senator Voinovich. Thank you, Mr. Bluestein.
We will start a series of questions. I will try and limit
mine to 5 minutes. Then I will give Senator Carper a chance and
keep going back and forth.
Mr. Krimmel, you mentioned it is essential that American
manufacturers have access to affordable, reliable energy in
order to compete in the global marketplace. I noticed in your
testimony that you really are concerned about this.
Could you share with us your experiences in that global
marketplace and how it has impacted your business and as
chairman of the Ohio Manufacturers Association, how it has
impacted some of your other associates in that organization?
The thing I remember most from your testimony when we had
the listening session in Cleveland was that but for your energy
costs, you had a profitable year and because of the spike in
the cost, you lost money. I have commented I think the
beginning of the recession in Ohio started with the spiking of
gas prices during that period of time which sent a real chill
through the manufacturing sector.
Mr. Krimmel. Yes, I certainly agree. In fact, when I
arrived in Washington today I saw a graph of manufacturing jobs
in Ohio and while my testimony indicates there are over 1
million direct manufacturing jobs in Ohio, I am sad to say it
has crossed below a million just recently. The graph really
begins dropping precipitously in 2001 the number of
manufacturing jobs in Ohio. If you do the inverse of that and
track natural gas, that is when the natural gas became very
high priced and volatile. I think it was a major contributor to
the loss of these jobs.
I can't emphasize enough that there are certain things I
can do better than my European competitors, better than my
Asian competitors. I am not afraid of paying my people $20 a
hour while the Asians are paying $20 a week because my workers
are much more productive than their workers and I am investing
in productivity improvement. That is an important asset. I can
offset that.
I cannot offset the natural gas difference and I wasn't
certain before I came here today what the difference in price
of natural gas in Asia and here was but I heard earlier
testimony that indicated our prices here are nearly double what
they are, what my competitors in Asia are paying.
My strategy to reverse the trend of declining sales which I
showed in the one chart and we started to turn around in 1997
was through increased exports, mainly to Latin America. We
currently export about 17 percent of our materials to Latin
America. Prior to that time, it was just a declining domestic
market that was affecting my sales.
My ability to continue to grow that export market was
severely affected by the run-up in natural gas, I just couldn't
compete with the materials coming over from Asia and Europe in
Latin America. So it has had that type of impact. It is life
threatening to a company like Zaclon and I have heard Henry Hub
prices of $5.70. You have to understand that translated into
delivered prices to a company like Zaclon of about $7.50 and
that is exactly twice what it has historically been.
How can I offset that? I am not certain how I can offset
that. I will do everything I can but I don't know.
Senator Voinovich. Have you heard the same complaints or do
you have any statistics on the price of natural gas on the
other manufacturers?
Mr. Krimmel. I certainly have heard the same complaints.
Natural gas is a major cost factor for all manufacturers in
Ohio, not only the chemical manufacturers but yes.
Senator Voinovich. Does the Manufacturers Association
maintain any kind of statistical analyses on its impact?
Mr. Krimmel. I don't think we have done an in-depth
analysis of the impact of natural gas prices on the loss of
jobs in Ohio. I am not certain. I will check into it and if
there is, I can provide that.
Senator Voinovich. It would be interesting to me. I would
be interested in having a survey of your membership to get an
on-the-street appraisal of what impact it has had on their
businesses, not only in this country but also in the global
marketplace in terms of international competition and what
indication they have of the costs their competitors are having
to pay for natural gas.
Mr. Krimmel. I will see, Senator, whether we have anything
first, I don't think so, and if not, I will see what we can
initiate and get information to you.
Senator Voinovich. Thank you.
Senator Carper?
Senator Carper. Mr. Thumb, I think I understood you to say
earlier in your testimony that electric generators have no
other alternative than switching to natural gas to meet
CO<INF>2</INF> limits. I am wondering if there are maybe some
other alternatives than just that one. Among the alternatives
are becoming more efficient and one of those opportunities
might be through co-generation, another could be coal
gasification.
Yesterday, I went for a drive in Washington. I don't
normally do that, I normally jump on a train and come down here
and go home every night to Delaware. I drove a car and I saw
Senator Voinovich doing the same thing. I don't often see him
driving around Washington.
Senator Voinovich. Because I don't have a car here.
Senator Carper. The folks from GM were good enough to loan
us both a car for a few minutes and we went for a short drive.
The cars we drove were powered by hydrogen and used fuel cells
and there is a fair amount of interest and focus on fuel cell
technology, mobile fuel cell technology in our cars, trucks and
vans as we look toward to having those on the road in some
numbers by the end of this decade.
Not as much attention has been given to the use of fuel
cells as a stationary source of power within the manufacturing
business or it could be in a home and the ability for us to
generate the electricity we need through fuel cells and even
sell electricity onto the grid.
Did I hear you correctly when you said that, Mr. Thumb?
Mr. Thumb. If I said that, I spoke incorrectly. I thought I
said primarily natural gas was the alternative. In my written
testimony, I did try to make that point that substantially a
change will have to come and then went through the other
potential fuels, the possibility of increasing hydro, the
possibility of our getting new and I went into the renewables
potential and tried to point out those. I do think the one
footnote tries to clarify that. My apologies, I thought I said
primarily.
It is a big shift. Every time we model it a huge percentage
of that shift goes to natural gas and hopefully I used the word
primarily.
I was interested in your point on fuel cells. If you would
allow me, natural gas is a big contributor if you are going to
fuel cell technology. I think only 5 percent of hydrogen comes
from natural sources and then you have to get it from others
and natural gas is one of the big ones to generate that kind of
hydrogen.
Again, I am deeply concerned about the supply sector and
that is the only thing I came to testify to you about.
Senator Carper. I don't know if any of our witnesses are up
to speed on clean coal technology and what you see waiting in
the wings or what has been developed at the R&D level, pilot
technology level. Are any of you able to share with us some up
to date reports with respect to clean coal technology,
particularly as it pertains to levels of emissions we are able
to achieve? Mr. Bluestein?
Mr. Bluestein. I can give a small report. I think we are
all aware of integrated gasification combined cycle technology
which is certainly not the newest technology. As mentioned
earlier, criteria pollutant levels comparable to natural gas
combined cycles and also offers the opportunity for lower cost
method of removing CO<INF>2</INF> which could be sequestered.
Deputy Secretary McSlarrow mentioned the zero generation coal
technology being pursued. There is a new plant in Pennsylvania,
a company called WMPI that is going to be used coal waste that
has been left around for many years to generate electricity and
steam and clean diesel fuel and potentially could be shifted to
generate hydrogen from coal.
I think if we are looking at controlling CO<INF>2</INF>,
clearly the answer in the long term is that we have to be able
to use these clean coal technologies and generate electricity
with sequestration or generate hydrogen. Mr. Thumb is correct,
right now most hydrogen comes from natural gas. In the long
term, it could come from coal and that technology is known. It
is an issue of making it less expensive.
I think the key issue here is how does multi-pollutant
regulation facilitate that change. How is the legislation
written to encourage that technology conversion? I think for
example the Carper-Chafee-Gregg bill makes some good steps in
that direction. There are also aspects of Clear Skies that help
that.
Senator Carper. In the second round, I want to come back to
that point with you, Mr. Bluestein, and with others on the
panel. I would like to discuss what do we need to be doing
legislatively in order to encourage the investment in those
kinds of technology, not just by the Government, not just by
the Federal Government, but what do we need to do to encourage
investment in those kinds of technologies by the utilities and
by those who invest in utility companies?
Mr. Thumb. Senator, on your question, you said any of us. I
am not an expert in those clean coal technologies but if you
would allow, one of my colleagues with whom I work closely is
here and could provide additional response if you choose. He
happens to be sitting in the first row. That is up to you if
you would like to hear his response.
Senator Carper. That is fine with me. Would you identify
yourself for the record?
Mr. Hewson. My name is Tom Hewson.
I would just like to reiterate what Mr. Bluestein said as
well, that obviously we have been making a large investment in
doing research, in trying to improve clean coal technologies.
We are trying to push the limits and get more and improved
technologies. IGCC, which I think you mentioned, is one of the
technologies in which we are spending a lot of time and effort
and has the potential to reduce or improve the fuel efficiency
of coal fired generation significantly above more conventional
technologies today.
We are still pursuing, we still have a ways to go before we
make them competitive with existing conventional technologies.
Senator Carper. Thank you.
Mr. Thumb. You specifically mentioned co-gen and I just
wanted to let you know in all the analysis we have done,
including the analysis that I tried to summarize for you today
does include 25,000 megawatts of co-gen which the industry is
planning to do, so we already have that in our numbers. Even
with that, we still see this problem for the supply sector.
I would encourage you that the timelines are what concerns
the gas supply sector the most, to the extent those timelines
can be extended even slightly to allow more time to come in so
things other than natural gas that would help the sector. We
have a real problem.
Senator Voinovich. Are you familiar with the comparison of
our natural gas prices with those overseas?
Mr. Thumb. Probably cannot do those off the top of my head.
To do what comes out of Zeiberg and Germany and those in Asia,
those are well published and I would have to go back and look
them up. I cannote to you that we have done research in this
battle between naptha and oil for ethylene which we used to
have an advantage in the 1990's and 1980's has switched and the
latest numbers I have is we have now gone to a 23 percent
switch. We were 23 percent less competitive than we were before
because of the change in the naptha/oil/gas. That is just on
the ethylene crackers. Then you have to go through the whole
chain to figure out the rest.
The chemical industry is hurting and I tried to put some of
that in my testimony about this fundamental shift between the
competition between Europe and Asia, particularly Asia. We were
at one time the world's largest exporter of chemicals and it
doesn't look like that past is going to happen. Asia and Europe
are definitely going to intrude upon that with this fundamental
shift in the raw material feedstock.
Senator Voinovich. That is the same type of information I
have gotten from some people who have stopped by to see me.
Does anyone know why is it that their prices are so much lower
than ours?
Mr. Metz. My scope is a lot smaller than Oklahoma versus
the world but I would say they are closer to the sources and
they have been importing LNG and the pipelines have been built
from the former Soviet Union and that kind of thing, those
things are in place and those supplies. In the world we have
more gas than we consume. It is just trying to get it to the
customer.
Senator Voinovich. Mr. Thumb, do you have any comment on
that?
Mr. Thumb. I was trying to do the specifics. I don't think
I can recall from memory the specifics but the fundamental
situation particularly in Europe is you do have the supplies,
you do have supplies coming in from several different sources
and that has been able to hold it.
We don't have the multitude of supply options they do and
plus we are a very mature region. We are going to have to build
those and we talked about some of these projects, LNG and the
Arctic gas supplies that will come in hopefully in time.
They do have the Russian, they do have the Norwegian gas,
the UK gas as well as that which is on shore that has helped
them. Asia, I can't do off the top of my head because it is
very much broken into pieces. It is such a huge area, I would
have to do research for you.
Senator Voinovich. Any information you would like to submit
after this hearing, I would like to see. I think too often when
we look at some of our things, we just think of the United
States and whether we like to admit it or not, we are in the
global marketplace. It is impacting our standard of living and
it gets back to how do you balance your environmental concerns
with your economic concerns.
As Senator Carper mentioned, we will have the energy bill
on the floor for discussion and the issue is, are there areas
we should be looking at that would be reasonably productive in
terms of natural gas, the whole issue of bringing the gas line
down from Alaska. That is not something around the corner but
we certainly have to look at those issues. Then you have to
look at the issue of this balance between went does a utility
or someone who has to make a decision decide to switch to
natural gas from something they are now doing.
Mr. Bluestein your comment was if we put more pressure on
people that you would see more use of clean coal technology.
How fast do you do that over a period of time. I keep hearing
that if you have these caps that are unrealistic or realistic
but don't give people enough time to comply with it, the only
choice someone has is to switch to natural gas.
I guess my point is that I keep hearing from our people in
Ohio, with the uncertainty we have out there today, and we both
agree on uncertainty, the only thing I am looking for is any
new facilities are going to use natural gas. Do you want to
comment on that?
Mr. Bluestein. Yes, I think you touched on several key
points. To take the last, we have heard a variety of situations
directly and indirectly from large power generating companies
that with uncertainty over CO<INF>2</INF> regulation, they are
not willing to take a risk. That suggests to me that they need
to get some certainty through some legislative action.
At the same time, I agree with you and others here that
unless something on CO<INF>2</INF> or any other pollutant is
done cautiously it can have grave consequences for the economy.
I don't know if you had a chance to look at the second chart in
my testimony but I think the key is timing, as in many things.
On the one hand, there are these new technologies and people
will agree that they are not quite ready today, the costs are a
little too high and we need to work on them more.
On the other hand, the key driver for those technologies is
regulation. If we delay the regulation for 10 years, most
likely we will find ourselves at exactly the same point again.
If you look at the conventional cap and trade program, it is
kind of like a cliff. There is an emission level, you come
along to some point and everybody jumps off the cliff. That is
a little scary for people.
The alternative I think is to build a staircase. If we
replace that cliff by a stair step of gradual reductions, it
doesn't mean that the bottom has to be any further away in
terms of the timeline but phase in things gradually, then what
you do is give people the certainty of where they are going,
give those people certainty that they need to go somewhere.
Our history has been that U.S. industry has been very
effective at finding ways to meet environmental regulations
given a decent warning. If we could phase it in gradually, then
I think that would jumpstart these technologies but with no
timing, I agree, it can be very difficult and probably have
dire circumstances, particularly for CO<INF>2</INF>. I think it
can be done with the proper program design.
Senator Voinovich. Mr. Metz, you said we have had a tough
winter and by this time, we should be building reserves for the
next one. What is your prediction? If we do have a very hot
summer, what impact do you think that is going to have relative
to the prices we have experienced this last winter?
Mr. Metz. Today the price for this time of year are higher
than they have ever been. With a very hot summer, the people
who have to fill the storage to keep the residential people
warm next winter don't know what next winter is going to be
like, so they have to get to the historic levels. So they
become a buyer of gas out there like the manufacturer is trying
to do. When there are more buyers than sellers, the price is
going to increase. I don't think it will be quite as dramatic
if it was 20 below zero on a day but those people have a lot of
pressure to get back to those 3.1 trillion cubic feet of gas in
storage by the end of October. That puts more and more pressure
on the marketplace.
Senator Voinovich. There is no way that the supply can
compensate at all for that?
Mr. Metz. No, I don't. To me the price, when it was at high
levels in the year 2001, there wasn't this massive amount of
new gas supply that came to the marketplace under those price
scenarios. It was a little growth and trying to maintain which
is very hard. As Mr. Thumb said, the places to drill in the
U.S. are very mature, so there is not a lot of big reservoirs
waiting to happen. The biggest reservoir you can think of is
the North Slope and that is a long term process to get that gas
down to the U.S.
Senator Voinovich. Some say that don't worry about it, we
will have liquefied natural gas. That isn't cheap, is it?
Mr. Metz. If the current price, the things I have read, is
$3 plus for gas on a long term basis can make those more
viable, but the current level of imports of LNG is 1.2 percent
of the total consumption we have. They are talking about
increasing that 15 fold over the next 10 or 12 years. That is a
major increase. I keep seeing people who want to site an LNG
import facility have problems getting that done. I think that
is a very strong goal to try to reach, so I am not sure it is
going to be as significant in the timeframe people are
predicting.
Senator Voinovich. It is relatively expensive?
Mr. Metz. It is expensive to a degree. When LNG first
started, the people who had it were the Algerians and that kind
of thing and they wanted to price it at a much higher price, so
all that business fell apart. A lot of those were mothballed
and not used.
I think now the biggest supplier of LNG is Trinidad, so
that is much closer to the U.S. and there has been a lot of
rethinking of how it should be priced. So it is more viable
today I believe but it still has a cost. You can't instantly
have enough ships to haul it in because they take special ships
to do that. You have to have unloading facilities and
regasifying facilities and you have to get past the permitting
to be able to do that.
Even though it is out there, gas in the world is greater
than we consume, it is just not easy to move across the ocean.
Senator Voinovich. It would be interesting to measure. We
have an economic stimulus bill we are considering now and I
have discussed that with a lot of people in my State and they
have said to me if you could do something about the natural gas
prices, it would have more effect on my business than any
stimulus package you could pass here in Washington.
We have an economy that is pretty fragile right now. It
seems to me that we have to start looking at some of these
other costs that we have that are bringing us down. For
example, I have been hearing more and more complaints from
manufacturers about competition from China. People are
complaining about litigation costs and some of the other things
out there impacting on our economy.
I think so often we just don't face up to some of the real
problems we have. It would be wonderful if somehow we could
compromise to get people in a room and work out some of these
issues that have been around for a long time and we don't
address them. I don't think we are making great progress in
improving the quality of the environment, nor are we doing very
much in terms of providing reasonable energy for our businesses
and our people and our country.
Senator Carper?
Senator Carper. Mr. Krimmel, I meant to as you this
question earlier but it slipped my mind. How long have you
lived in or around Cleveland?
Mr. Krimmel. Fifty-six years. I am from Cleveland, went to
school in Cleveland and started my business in Cleveland.
Senator Carper. I presume you have seen a number of mayors
of Cleveland come and go over that time?
Mr. Krimmel. I have, yes.
Senator Carper. Were there any you thought did an
especially good job?
Mr. Krimmel. As I recall, the real turnaround in Cleveland
came under Senator Voinovich. I have to give him some credit
for that.
Senator Carper. I have heard that from many people. Every
time they visit the Rock and Roll Hall of Fame, they come back
singing his tune.
On a more serious note, Mr. Bluestein, you talked a bit
about steps versus cliffs and said our experience as a Nation
is when we put in place environmental regulations and give
reasonable amounts of time for compliance, then usually with
Yankee ingenuity and a lot of hard work and some good
investment, our companies and businesses can get there and stay
in business and remain profitable and do the right thing for
the environment.
We have introduced the legislation I have referred to a
couple of times along with Senator Chafee and Senator Gregg.
When you characterize the approach we have taken with respect
to CO<INF>2</INF>, we don't mandate. I think in Senator
Jeffords' bill he mandates getting back to 1990 emission levels
I think within this decade. In our legislation, we say by 2009,
CO<INF>2</INF> emissions have to be where they were in 2005. By
the year 2013, we call for ratcheting down CO<INF>2</INF>
emissions where they were in 2001. Is that a cliff or is that a
staircase approach?
Mr. Bluestein. I think the key issue in that legislation is
that you also allow off-sector reductions. I think in doing any
kind of CO<INF>2</INF> mitigation, there are two safety valves.
One is off-sector reductions which you incorporate; the other
would be timing which is the example I gave.
I agree there is a huge amount of uncertainty about how we
reach long term CO<INF>2</INF> targets. It is critical that we
promote long term solutions like new coal technology,
sequestration, other things we probably haven't thought of yet.
I think if there were no off-sector reductions allowed in the
legislation you've offered, I would be concerned. I think with
the off-sector reductions, it offers a safety valve.
The concern I would have is does it at the same time
provide the push for the new coal technologies? That is what
you really need to move forward.
On the other hand, you do have an allocation program that
is more favorable to new technologies including coal
technologies. So that is a bonus for going down that longer
term path.
Senator Carper. Someone told me the other day that if you
consider the amount of coal reserves we have in this country
and compare those to the amount of oil reserves they have in
Saudi Arabia or Iraq, we are the Saudi Arabia of coal and we
have more coal reserves maybe than any country in the world.
Can one of you confirm that for me?
Mr. Hewson. The other two are Russia and China and I do
think we are No. 1 ahead of those. We are uniquely in our
carbon fuels gifted with coal. Saudi Arabia and Iraq are gifted
with oil and gas.
Senator Carper. And North Dakota is gifted with wind and
lignite.
Mr. Chairman, it seems to me and it is kind of fortuitous
that as we hold this hearing, we are literally taking up the
debate on the energy bill almost at the same time. There are so
many things we can do in the context of energy legislation.
Part of that deals with renewable forms of energy, whether
hydro or geothermal, solar or even biomass. The Dupont Company
has come up with new technology that enables them to take the
entire cornstalk and turn that into ethanol and to do so in a
way that is so energy efficient they believe we will no longer
need a tax subsidy to be able to compete with gasoline.
Down in Brazil, they are doing a similar kind of thing with
sugar cane which is exciting and encouraging.
We talked earlier about natural gas production, being able
to complete a pipeline from Alaska to get some of that natural
gas to us and I think there is going to be a proposal to do a
study to look offshore to see if there are some places that it
makes sense to search for natural gas.
I am a former Navy guy and I believe nuclear power has an
appropriate role in providing some of our energy needs. I
believe legislation coming to us supports expansion of nuclear
power. We talked a bit about fuel cells. We have not talked too
much about conservation. I think one of the damning things I
have heard about the bill coming out of committee to us in the
Senate on the conservation side is it just doesn't do that
much. They focus a good deal on the production side but not
very much on the conservation side, and little if anything on
more efficient cars, trucks and vans, little if anything with
respect to the air conditioners we will be using this summer
and how to use a lot less electricity from more efficient air
conditioning.
I keep coming back to the matter of what can we do to
incentivize the investment in clean coal technology, not just
the R&D, but to encourage utilities and investors to put their
money where their mouths are. We know we have the technology,
we know it works. I think part of the challenge for us is how
do we craft legislation where there is a 3-P or hopefully a 4-P
bill that incentivizes the investment in that kind of
technology.
Mr. Bluestein talked a bit to that and I don't know if you
have anything else you want to add but for me that is not the
whole ball game, but it is a big part of it.
Senator Voinovich. Senator Carper, I can tell you, and I am
not here to push Clear Skies, but I have it authoritatively
from the utilities in our State and other utilities that if
Clear Skies passed, they would move forward with clean coal
technology, that the caps in that and the certainty of that
would cause them to move forward with clean coal technology so
we could burn our coal and also the advantage of developing
clean coal technology is that you can either sell it or give it
away to other places in the world because we know darned well
that China and Russia have large supplies of coal. We know they
are going to be burning that, either clean or burning and
emitting into the environment and ultimately impact us
environmentally and directly or indirectly in terms of our
economy because of competing in the global marketplace.
Senator Carper. Mr. Bluestein, I think I understood you to
say in your testimony, talking about the effect of Clear Skies
legislation on clean coal and willingness of investors to
invest in clean coal facilities, that there would be some
positive effect that would come from Clear Skies. Did you say
that and could you compare the positive effect on the adoption
of clean coal technology in a practical world from Clear Skies
with the effect that might come out of legislation Senator
Chafee, Senator Gregg and I have introduced?
Mr. Bluestein. There is definitely a positive effect from
either bill through providing certainty and flexibility. The
cap and trade program provides a huge amount of flexibility to
affected sources to try different technologies, have
flexibility in compliance. Both of the bills, the one Senators
Carper, Gregg and Chafee have introduced and Clear Skies
provide flexibility and that is important for existing and new
plants.
The other way such a bill can affect future construction I
think the biggest piece is through the allocation of
allowances. There is something like $9 billion worth of
allowances that are going to be distributed under this kind of
system, $9 billion per year of allowances. That can have a big
effect on choices that companies make.
In the Clear Skies Act, all of those allowances go to old
plants. Some people see that as a benefit for coal. It is not
really, it is a benefit for existing plants. A lot happen to be
coal plants but in terms of coal with a ``C'' the ability to
develop new technologies, the ability to have coal as a
continuing important part of our energy mix, we have to look to
the future and that is why I think a system where allowances
are periodically reallocated to all the plants including new
plants provides an incentive to develop and build new coal
plants and develop new coal technologies that are part of the
mix I think we all agree we need.
So I think that is the second piece that is very important
and which is in the bill that Senators Carper, Chafee and Gregg
have introduced.
Senator Carper. I think that this has been a good hearing.
I presume this is the last panel?
Senator Voinovich. Yes, it is.
Senator Carper. I would note one of our witnesses, I am not
sure who, actually mentioned we can improve our efficiency in
generating electricity by introducing more energy efficient
coal-fired plants, by introducing more energy efficient nuclear
plants. Someone also mentioned that we can save ourselves some
natural gas by introducing the next generation of natural gas
powered electric utilities. That is true too. Some of these
plants are pretty old, aren't they, and rather inefficient?
Mr. Bluestein. Yes, and to the extent that new gas
generation replaces less efficient gas generation, it is
reducing gas consumption.
You mentioned efficiency. We can also allocate allowances
to electric efficiency improvements so we can use that
mechanism because it is a zero sum game. It is electricity that
you generate or you don't and somehow it relates to the
emissions you create or don't create. If we are going to have a
market-based system, which is what the cap and trade program
is, we ought to include all of the market and allow that market
to function. The idea is the market is going to find the least
cost way of meeting our emission goals, so we have to include
everybody.
I think the topic of efficiency has been mentioned several
times and that includes end use efficiency. There are ways we
can include that in the program and reap those benefits as
well.
Senator Carper. Good point. Thank you.
Mr. Thumb. IF I could add to the question, you are right,
when we do build combined cycle plants, they do displace steam
generator plants. Basically, it takes about seven molecules in
a combined cycle plant to produce the same amount of
electricity as it takes 10 molecules inside a steam generator,
the so-called efficiency effect. That efficiency effect because
of the way this Nation evolved is highly concentrated in three
areas, Texas, Florida and California.
We are basically building between 1998 and about 2007,
266,000 megawatts of new capacity of which about 70 percent of
these new combined cycles, 184,000 megawatts. There is only
125,000 megawatts of existing steam generator and except for
the three units I note, we really aren't getting that
efficiency effect. This is new gas, not that it isn't great,
but I wanted to add it tends to be very regional specific
because of the way this Nation evolved. It is never
homogeneous.
Those plants, basically those 60 percent plants beyond what
we have right now, are located in other regions and that will
be incremental gas demand.
Senator Carper. It's been a good panel and a very good
hearing. We are grateful to each of you for being here and
sharing your thoughts and responding to our questions.
Senator Voinovich. Thank you very much.
We stand adjourned.
[Whereupon, at 11:55 a.m., the subcommittee was adjourned,
to reconvene at the call of the chair.]
[Additional statements submitted for the record follow:]
Statement of the Honorable Kyle E. McSlarrow, Deputy Secretary of
Energy
Mr. Chairman, I am pleased to appear before you today to discuss
the Administration's National Energy Policy and to discuss why we think
Clear Skies is a critical component of the President's strategy to
confront our energy and environmental challenges.
Though it is often overlooked, the President's National Energy
Policy directed the Administrator of the Environmental Protection
Agency to work with Congress to propose legislation that would
establish a flexible, market-based program to significantly reduce and
cap emissions of sulfur dioxide, nitrogen oxide, and mercury from
electric power generators. The President's National Energy Policy
concluded that, as our energy needs grow, additional innovations would
be necessary to continue improving our environmental conditions. The
success of the Clean Air Act Acid Rain program in promoting innovation
and emission reductions is well known especially by Members of this
committee--and served as the template for the Clear Skies legislation
now before this Committee.
We are pleased that the Senate is now considering a comprehensive
energy bill reported out of the Senate Energy committee, and commend
Chairman Domenici and the members of his committee for acting so
swiftly. And, we commend you, Mr. Chairman, and this committee for
moving aggressively to consider the Clear Skies legislation.
Introduction and Outlook
Over the past century, we have witnessed the power of energy to
drive global economic development. In the 1970's, we learned firsthand
how energy shortages and resulting high prices can compromise economic
growth and the quality of life to which Americans have grown
accustomed. Clearly, the availability of reliable, affordable energy is
critical to sustained economic growth.
We have a series of long-term energy challenges that require action
now. These challenges are present along the entire energy continuum,
affecting crude oil, refinery products, natural gas, electricity
generation and transmission, the environment, and economic growth.
The Nation's Power Industry
To understand the need for Clear Skies, it is important to
understand the current make-up of the Nation's electric power industry.
The U.S. power-generating sector remains the envy of the world. On any
given day, approximately 5,000 generating plants can make available up
to 900,000 megawatts of electricity for virtually every home and
business in the country. Fossil fuels supply about 70 percent of the
Nation's requirements for electricity generation. Coal, alone, accounts
for more than 50 percent of the electricity Americans consume.
Primarily because of the power sector's use of abundant supplies of
American coal and natural gas, consumers in the United States benefit
from some of the lowest cost electricity of any free market economy.
U.S. Electricity Generation by Fuel
America's economic progress and global competitiveness have
benefited greatly from this low cost electricity. Electricity is an
essential part of America's modern economy. While the Nation has made
dramatic progress in ``decoupling'' overall energy consumption from
economic growth, increased economic activity remains closely linked to
the availability of affordable electric power and is likely to remain
so well into the future.
The Nation's demand for electricity is projected to grow
significantly over the next 22 years. Between now and 2025, the United
States will likely have to add between 446,000 and 656,000 megawatts of
new generating capacity to meet growing demand. This is equivalent to
adding the entire power generation sectors of Germany and Japan,
combined, to the U.S. power grid. Concurrent with this dramatic and
capital intensive expansion of the Nation's power fleet, power
generators will also be called upon to make new investments in
pollution control technologies to meet tightening environmental
standards. Over the past 25 years, America's electricity utility
industry has invested billions of dollars in advanced technologies to
improve the quality of our air. Each year, a substantial portion of
normal plant operations costs again amounting to several billions of
dollars a year are associated with operating installed technologies
that reduce air emissions.
The investment has returned dividends. By installing new
technologies to capture tiny particles of fly ash, the power industry
has significantly improved air quality by dramatically reducing
particulate matter. The power industry has also installed sulfur
dioxide controls on more than 90,000 megawatts of capacity as part of a
successful effort that has cut SO<INF>2</INF> emissions substantially
since 1970. Most of the nation's coal-fired plants have also installed
nitrogen oxide controls that have helped make initial NOx reductions.
In short, advanced technology given the time to mature and be deployed
can be effective.
Technological improvements have permitted the Nation's power sector
to continue generating relatively low cost power and, at the same time,
use the energy resources America has in most abundance. America's use
of coal, for example, has actually tripled since 1970 even as our air
has become cleaner. Advanced technology also offers a pathway toward
the prospects of achieving even greater reductions in air pollutants in
the future.
At this point, let me review long-term energy trends with a focus
on natural gas and coal which should help illustrate our challenges. My
comments here are based on analyses prepared by the Department of
Energy's independent analytical arm, the Energy Information
Administration, in its Annual Energy Outlook 2003 (AEO 2003). All
statistics are based on EIA's reference case scenario for the year
2025, which assumes current laws and regulations, including the Eastern
U.S ozone SIP call, but not future regulations, such as those to
implement the new Clean Air Act ozone and particulate matter standards
or the mercury MACT standard.
The reference case also assumes continued improvement in energy
consuming and producing technologies, consistent with historic trends.
Natural Gas Trends
The natural gas share of electricity generation is projected to
increase from 17 percent in 2001 to 30 percent in 2025. By 2025, total
natural gas consumption is expected to increase to almost 35 trillion
cubic feet, which will amount to 26 percent of U.S. delivered energy
consumption. Industrial consumption the largest natural gas-consuming
sector--is expected to increase by 3.4 trillion cubic feet over the
forecast, driven primarily by economic growth. Combined consumption in
the residential and commercial sectors is projected to increase by 2.6
trillion cubic feet between 2001 and 2025, driven by increasing
population and healthy economic growth, and accompanied by gradually
rising prices in real terms. Natural gas remains the overwhelming
choice for home heating throughout the forecast period. Natural gas
consumption in the generation sector doubles by 2025 due to lower
capital costs, higher efficiencies, lower construction lead times, and
lower emissions.
In the short term, domestic natural gas prices are expected to
remain high in 2003 and are at risk for significant volatility through
at least the next 12 to 18 months. EIA estimates that the current
natural gas storage level is the lowest on record for this point in the
annual cycle. As long as temperatures remain at or below normal this
summer, natural gas storage levels should rise sharply over the coming
months. But if this summer is hotter than normal, natural gas prices
would jump as cooling demand would compete with the need to build
storage inventories. A large rebound in the economy, poor results from
the ongoing increase in natural gas drilling, or a continued tight oil
market might also spur volatility.
On that note, drilling for natural gas expected to increase
substantially, but a fourth U.S. LNG terminal is expected to open this
year at Cove Point, Maryland, and a Kern River Pipeline extension from
the Rockies to the West Coast opened earlier this month--greatly
increasing the capacity to move gas from a key producing area. In
In 2004, declining oil prices should ease natural gas prices, and
strong natural gas drilling should increase productive capacity through
the end of the year.
Domestic gas production is expected to increase more slowly than
consumption over the long-term forecast, rising from 19.4 trillion
cubic feet in 2001 to 26.8 trillion cubic feet in 2025. The national
average wellhead price is projected to reach $3.90 per thousand cubic
feet, in 2001 dollars, by 2025.
Increased U.S. natural gas production through 2025 is projected to
come primarily from unconventional sources and from Alaska.
Unconventional gas production increases by 4.1 trillion cubic feet over
the forecast period--more than any other source, largely because of
expanded tight sandstone gas production in the Rocky Mountain region.
Annual production from unconventional sources is expected to account
for 36 percent of production in 2025, compared to 28 percent today. An
Alaska natural gas pipeline is projected to begin flowing gas to the
lower 48 States in 2021, reaching 4.5 billion cubic feet per day in
2023, with further expansion beginning in 2025. In 2025, total Alaskan
gas production is projected to be 2.6 trillion cubic feet.
Conventional onshore non-associated production is projected to
increase by 1.2 trillion cubic feet over the forecast, driven by
technological improvements and rising natural gas prices. However, its
share of total production declines from 34 percent in 2001 to 29
percent by 2025. Non-associated offshore production adds 560 billion
cubic feet, with increased drilling activity in deep waters; however,
its share of total U.S. production declines from 22 percent in 2001 to
18 percent by 2025. Associated dissolved production declines by 800
billion cubic feet, consistent with a projected decline in crude oil
production. Lower 48 associated-dissolved natural gas is projected to
account for 8 percent of U.S. natural gas production in 2025, compared
with 15 percent in 2001.
A key question facing producers and policymakers today is whether
natural gas resources in the mature onshore lower 48 States have been
exploited to a point at which lower discoveries per well eliminate the
possibility of increasing--or even maintaining--current production
levels at reasonable cost. Depletion has been counterbalanced
historically by improvements in technology that have allowed gas
resources to be discovered more efficiently and developed less
expensively, have extended the economic life of existing fields, and
have allowed natural gas to be produced from resources that previously
were too costly to develop. In EIA's projection, technological progress
for both conventional and unconventional recovery is expected to
continue to enhance exploration and reduce costs. However, there is a
significant debate within the industry itself as to whether this will
occur.
The difference between U.S. natural gas production and consumption
is net imports. Net imports of natural gas, primarily from Canada, are
projected to increase from 3.6 trillion cubic feet in 2001 to 7.8
trillion cubic feet in 2025. Net imports contributed 16 percent to
total natural gas supply in 2001, compared to an expected 22 percent in
2025. Almost half of the increase in U.S. imports is expected to come
from liquefied natural gas (LNG). By 2025, EIA expects expansion at the
four existing terminals and construction of three new LNG terminals.
Growth in pipeline imports from Canada partly depends on the
completion of the MacKenzie Delta pipeline, which is expected to be
completed in 2016 and expanded in 2023. Net imports from Canada are
projected to provide 15 percent of total U.S. supply in 2025, about the
same as in 2001. Mexico is projected to go from a net importer of U.S.
natural gas to a net exporter in 2020, as an LNG facility begins
operating in Baja California, Mexico, in 2019, predominantly serving
the California market. By 2025, the United States is expected to import
about 350 billion cubic feet of natural gas from Mexico per year.
Coal Trends
The share of electricity generated from coal is projected to
decline from 52 percent in 2001 to 47 percent in 2025 as a more
competitive electricity industry invests in less capital-intensive and
more efficient natural gas generation technologies. Nonetheless, coal
remains the primary fuel for electricity generation through 2025, and
EIA projects that 74 gigawatts of new coal-fired generating capacity
will be constructed between 2001 and 2025.
EIA's analysis here does not incorporate a projection of several
Clean Air Act programs that could have a significant impact on the use
of coal such as the mercury MACT. Although this rule has not been
proposed, based on requirements of the Clean Air Act it is designed to
require the control of mercury on a source by source basis by the end
of 2007, which could be very costly and cause an even greater decline
in the share of electricity generated by coal.
EIA projects growing domestic consumption over the forecast
horizon, and projects a simultaneous reduction in real coal prices to
generators by approximately 12 percent by 2025. Average annual coal
consumption is projected to increase by 1.3 percent per year between
2001 and 2025. As domestic coal demand grows, U.S. coal production is
projected to increase at an average rate of 1.0 percent per year.
The decline in prices is driven by the expectation of continued
improvements in labor productivity, and the continued market expansion
of western coal, which has a lower minemouth price than eastern coals.
As western production makes further inroads into markets traditionally
supplied by eastern coal, the average heat content of the coals
produced and consumed will drop as well, reflecting the lower thermal
content per ton of western than eastern coals.
President Bush's National Energy Policy
We long ago ceased to fully provide for our petroleum needs
domestically, and though most of our current natural gas demand can be
met with North American production, the trend here is also toward a
greater share for imported natural gas. And coal, our most abundant
energy resource, is actually projected to reduce its percentage share
of electricity generation.
We are often at the mercy of events and decisions over which we
have often limited and sometimes no control. When winters and summers
are mild; when all refineries or pipelines are online; when supply from
abroad is abundant and reliable; when prices are reasonable, we do not
feel this dependency. However, when almost any one of these factors
breaks down, markets react instantly, and we face the higher prices and
volatility that have become by now an almost certain cyclical
phenomenon.
These trends are a concern.
President Bush recognized that to prevent these problems from
becoming a permanent, recurring feature of American life, we needed a
long-term plan for energy security that would promote reliable,
affordable and environmentally sound energy for the future.
President Bush's National Energy Policy, released in May, 2001,
reflected a few, fundamental principles. First, we need to maintain a
diversity of fuels from a multiplicity of sources. Second, we should
seek opportunities for increased investment, trade, exploration and
development, which are increasing every year, far beyond the
traditional markets of the last 50 years. And third, we should focus on
research and development on initiatives that seek long-term solutions
to our energy challenges, as we have done with energy efficiency,
renewables, hydrogen, fusion, and nuclear energy, as well as the
recently announced zero-emission FutureGen coal project.
While these initiatives hold enormous promise for the future, we
recognize the need for immediate actions to address the nation's
growing energy demand. Clear Skies figures prominently on this list.
I'd like to mention just a few of the actions currently underway,
particularly those focused on ensuring adequate supplies of natural gas
and electricity.
To increase and diversify domestic supplies of natural gas, the
Administration, among other actions, has streamlined the process by
which permits are granted for important energy projects, such as
pipelines and refineries, and accelerated the leasing of non-restricted
Federal lands where environmentally appropriate.
The Administration is encouraging new gas well investment by
allowing for access to high quality resources and growth in pipeline
delivery capability. We recognize that recoverable resources tend to be
more difficult to develop and produce because the U.S. is a mature
producing area. This increases ultimate supply costs, which requires
ever increasing prices to be economically viable. A number of
locations, such as portions of the Rocky Mountain area and the eastern
Gulf of Mexico, are currently unavailable to exploration and
development even though they are expected to contain substantial
volumes of recoverable natural gas.
Interstate pipelines have been expanding delivery capacity, but
additional expansions are needed to satisfy expected market growth. In
2002, 54 interstate pipeline projects were completed, adding about 12.8
billion cubic feet of capacity per day throughout the U.S., and
proposals for expansions in 2003 through 2005 have been announced for a
number of pipelines. The gas pipeline network has grown extensively
over the past decade to meet the increasing demand for gas and to
accommodate diversified gas sources. Regulatory lags in obtaining
authorization for expansions of pipeline capacity are being addressed
by initiatives at the Federal Energy Regulatory Commission (FERC) aimed
at streamlining this approval process.
The Administration also strongly supports the construction of a
commercially viable Alaska natural gas pipeline as a critical part of
our energy security portfolio.
The National Energy Policy also highlighted the growing need for
attention to the nation's electricity markets and infrastructure. The
Administration's overarching goal is to ensure that Americans have
abundant, affordable, clean and secure electricity supplies, and we
strongly believe that Clear Skies is a key component of meeting this
goal, as is a comprehensive energy bill that includes a sound
electricity title to modernize our Nation's antiquated wholesale
electricity laws.
The Administration believes that there really is only one viable
policy choice: we must complete the transition to effective competition
in wholesale power markets.
Well-functioning markets will, we believe, lead to lower costs for
consumers and businesses. But there is more than simply the benefit of
lower prices. A well-functioning market brings its own rewards. As
confidence is gained that the system is reliable and capable of coping
with high-demand for electricity, there will increasingly be less need
for restrictive and prescriptive regulation. And that is the point when
much-needed investment is likely to be attracted--investment in new
technologies, and in improved generation and transmission facilities
that produce additional energy and environmental benefits.
When the opposite is true when uncertainty reigns, when reliability
is questioned, when prices seem detached from market forces investment
vanishes.
The present uncertainty in the wholesale electricity market is not
simply affected by policy choices that center on transmission assets
and market designs. The uncertainty extends to the generation of
electricity itself. That is why it is important to provide greater
regulatory certainty about the kinds of investment choices that the
generating industry will have to make over the next two decades.
We believe that the President's Clear Skies proposal does just
that.
S. 485, Clear Skies Act of 2003
In 2000, 39 percent of the total energy consumed in the U.S. was
for power generation. Since 1975, total U.S. energy use has grown by
about 1.1 percent per year, while GDP and electricity consumption have
grown by nearly 3 percent per year. We project future electricity
growth to be somewhat less, below 2 percent per year, but it is clear
that electricity is either the fuel of choice or fuel of necessity for
many applications.
Our electric power is among the lowest in cost of any free market
society. Low cost electricity is part of America's competitive edge in
international markets. Cheap power translates to prosperity and
available resources to overcome problems in many areas unrelated to
energy but essential to our quality of life. A major reason that
electricity in the U.S. is relatively inexpensive is that roughly one-
half of our generation comes from coal.
S. 485, the Clear Skies Act of 2003, is a multi-pollutant, market-
based cap and trade program that will reduce power plant emissions of
sulfur dioxide (SO<INF>2</INF>), nitrogen oxides (NOx) and mercury by
approximately 70 percent from today's levels--and do it faster, with
more certainty, and at less cost to American consumers than would
current law.
Flexibility of compliance choices, maintenance of fuel diversity,
and the cost savings passed on to consumers through lower electricity
prices are among the benefits of the approach taken in Clear Skies,
particularly when compared with other proposals that support more
stringent targets, shorter compliance periods, or command and control
regulatory approaches. The cap-and-trade system of emission reductions
used in S. 485 should translate into reduced impacts on fuel markets in
particular, coal and gas than equivalent emission reductions achieved
through other approaches.
The Clear Skies Act substantially expands one of the most
successful Clean Air Act programs the Acid Rain Program and reduces the
need to rely on complex and less efficient programs. Power plants would
be allowed to choose the pollution reduction strategy that best meets
their needs (e.g., installing pollution control equipment, switching to
lower sulfur or mercury coals, buying excess allowances from plants
that have reduced their emissions beyond required levels). And like the
Acid Rain program, Clear Skies includes banking provisions, enabling
companies to save unused allowances for future use. The result would be
significant nationwide human health and environmental benefits;
certainty for industry, States and citizens; energy security; and
continuing low costs to consumers.
S. 485 establishes a coordinated timeline for control of major
emissions that provides adequate time to attract investment funds and
avoids premature retirement of working capital. The patchwork of
existing and soon-to-be-implemented regulations under the Clean Air
Act, coupled with the delays bred by continuous litigation over them,
has created enormous uncertainty for utilities, co-ops, and municipal
generators. This uncertainty has curtailed investments in technology
that would reduce emissions at existing plants and prevented numerous
new facilities from coming online. Clear Skies provides industry with
the time needed to attract capital necessary to reduce emissions
without jeopardizing energy security.
Energy Impacts of Clear Skies
It is difficult to quantify what the cost or energy impacts will be
if multipollutant legislation is not enacted. The EIA ``baseline''
includes all future legislation and regulations that have been
specified, but does not include regulations that have not yet been
promulgated. We know that in the absence of S. 485, mercury regulations
will be promulgated by December 2004. But we do not know what those
regulations will require; that knowledge will come only after a lengthy
rulemaking process. We can anticipate that additional reductions in
SO<INF>2</INF> and NOx will be required to attain ambient air quality
standards for fine particulate matter. But we do not know what those
regulations will be. We can anticipate additional regulations to reduce
regional haze, but again, we do not know what those regulations will
require.
What we should be concerned with is this: uncertainty, delay, and
litigation are not likely to produce greater environmental benefits;
they instead are likely to lead to more costly solutions, and they risk
affecting the energy fuel mix in ways that are unwarranted and
unforeseen.
Although we have not contrasted Clear Skies to this unknown
regulatory future, we have compared it to a future predicated on
current control programs. Under Clear Skies, natural gas consumption,
which is projected to increase from 23 to 35 trillion cubic feet of gas
in our baseline projection to 2025, increases to 36 trillion cubic feet
per year in 2025. However, we do not project that a significant change
in natural gas supply is needed due to the implementation of Clear
Skies. Wellhead natural gas prices follow the baseline pattern, after
decreasing from the unusually high prices that occurred in 2001.
Clear Skies helps maintain coal as an important fuel source,
thereby avoiding excessive pressure on natural gas prices. In our
baseline projection, coal consumption would increase about 38 percent
through 2025. Under S. 485, we project approximately a 26 percent
increase.
EIA projects that electricity prices will be lower throughout the
projection period than in 2001, for both the baseline scenario and
under S. 485. The effect of the emission reductions is roughly a 0.3
cent per kilowatt-hour price increase above the baseline in 2025.
One of the concerns we have is in the ever-increasing reliance on
natural gas for generation of electricity. As I have noted previously,
this is primarily a function of efficiency and costs, but because our
marginal supply of natural gas will increasingly come from imported LNG
we should be concerned that we not place too much stress on natural gas
supply by forcing a level of fuel switching from coal to gas that leads
to higher volatility and higher prices. Natural gas supply as a low-
cost and reliable source of electricity is not automatic one has only
to witness the winters of 2000-2001, and 2002-2003 to see the point.
In both the near and long term, the price of a commodity like
natural gas is determined by the interaction of supply and demand.
However, the determinants of supply and demand in the near term can be
quite different than the factors that determine prices in the long
term. In the near term, factors such as weather related increases in
demand, storage levels, productive capacity at the wellhead, and
disruptions in supply lines can be paramount because of the difficulty
of quickly increasing the number of producing wells. Long-term market
conditions, however, depend more on such factors as
<bullet> the ability of markets to respond to price increases with
adequate investments in new wells;
<bullet> continuing availability of alternative fuels for
generation;
<bullet> a viable market for imported gas;
<bullet> the continued development of new technologies; and
<bullet> emissions reductions required under future regulation
The difference in what affects natural gas prices in the near term
versus long term has important policy implications. We have to
recognize that in the short run it is hard to do much about natural gas
supply. From the time natural gas prices spike, the industry rule of
thumb is that it takes 6-18 months for production to increase. And,
unlike oil, there is currently no large international spot market in
liquefied natural gas to moderate gas supply scarcity.
The elasticity of natural gas demand plays a significant role in
price volatility. Because many users cannot switch to alternative fuels
quickly, demand tends to be more inelastic in the short run. Inelastic
demand means that small changes in demand lead to significantly higher
prices than under less inelastic demand. Demand becomes less elastic as
electric generators or industrial users lose their ability to switch to
another fuel or as any user loses the ability to reduce consumption in
response to higher prices.
It is, therefore, critically important that we maintain a balanced
diversity of fuels to provide low-cost and abundant electricity. And
the key to this is that we not assume that all policy objectives can
simply be achieved with unlimited reliance on natural gas.
The Role of Research
One of DOE's fundamental missions is the advancement of energy-
related technology. I would be remiss if I did not emphasize again that
the projections I have presented today assume only a continuation of
historic trends in technology evolution. We have the ability to change
those trends through dramatic technology improvements. We intend to do
exactly that.
The President has launched a suite of relevant technology
initiatives: FreedomCAR and the Hydrogen Fuel Initiative (the hydrogen/
fuel cell vehicle and infrastructure program), FutureGen (a program to
develop a zero-emission coal-based power plant, coproducing low-cost
hydrogen and sequestering CO<INF>2</INF>), and fusion electric power
plants. Success in these areas will dramatically change the energy,
economic, and environmental future of the Nation.
The future role of coal in our energy mix may also be highly
sensitive to the success we have in our program to improve Integrated
Gasification Combined Cycle (IGCC) technology, an inherently clean way
to produce power from coal. This technology has already been
demonstrated at commercial scale, but additional support is being
provided by DOE to enhance its efficiency, reduce technological risk,
and drive down capital costs. In addition, as I mentioned earlier, we
are also pursuing R&D targeted specifically on one of the tougher
challenges in Clear Skies mercury control.
Conclusion
In conclusion, we believe that Clears Skies, which provides a range
of benefits improved health, cleaner air, and economic efficiency--is
the best approach to address our dual energy and environmental
challenges. Clear Skies avoids the more serious economic consequences
of other approaches to cleaner air and provides market-based
flexibility to the energy sector. Clear Skies, combined with our many
other efforts to develop new, reliable, and secure sources of energy,
will deliver significant environmental protection. It will help us to
achieve our national goal of abundant, affordable, and clean sources of
energy by maintaining fuel diversity and by providing greater
regulatory certainty.
__________
Statement of Jim Krimmel, President, Zaclon, Inc., Chairman of the
Board, Ohio Manufacturers' Association
Chairman Voinovich and members of the Senate Subcommittee on Clean
Air, Climate Change, and Nuclear Safety, good morning and thank you for
the opportunity to testify today.
My name is Jim Krimmel and I am President of Zaclon, Incorporated.
My company, which is located in Cleveland, Ohio, is a manufacturer
of both specialty and basic chemicals with wide applications and
worldwide sales. Currently, we are the largest producer of galvanizing
fluxes in the world, and sell products in 19 countries. But we're a
small company, with only 35 employees and under $12,000,000 in annual
revenues. Our primary competitors are domestic, European, and
increasingly Asian.
I am also the current Chairman of the Board of Directors for the
Ohio Manufacturers' Association. The OMA, with its' 2500 member
companies is the voice of manufacturing in Ohio the strength of Ohio's
economy.
Today, as job providers in Ohio, manufacturers employ over a
million people directly and countless million others in the service,
finance and other industries employed indirectly by Ohio's
manufacturing companies.
As you know, Ohio is an energy intensive state that ranks in the
top five nationwide in both commercial and residential energy
consumption.
To maintain a competitive advantage in today's tough global
marketplace, it is essential that Zaclon and Ohio's other manufacturers
have access to dependable, low cost energy sources. But in recent
years, energy, and more specifically natural gas, has been anything but
low cost. And fuel switching related to compliance with ever tightening
air regulations coupled with inadequate exploration and drilling for
natural gas is a major factor in this unprecedented run-up and
volatility in natural gas prices. As the manufacturing economy improves
and as more fuel switching occurs, the problem will only get worse. The
high price and volatility of natural gas has threatened and continues
to threaten the very existence of small and medium sized manufacturers
like Zaclon. In that respect, my company's experiences are a good
illustration. The charts that I've included with my testimony tell the
story.
This first graph shows Zaclon's Energy/Utility Costs by medium over
the past 15 years. It demonstrates both the magnitude and volatility of
expenditures that my company has faced during that time. By itself,
this chart is interesting enough in that it shows a 63 percent increase
in natural gas costs from 1999 to 2002. The run-up in natural gas
prices back in 2001 nearly put us out of business despite imposing an
energy surcharge on our customers.
What is more revealing, however, is this next graph which
superimposes Zaclon's product sales on the energy cost numbers over the
past 10 year period.
This combination of increasing energy costs with declining sales
revenues is unsustainable for any length of time. We are running out of
other cost reduction opportunities, and we really can't pass the
increases on to our customers without giving up a significant share of
the U.S. market to our overseas competitors.
To further emphasize the impact of escalating natural gas prices on
Zaclon, the next two pie charts show a comparison of my company's total
cost structure between the most recent year 2002--and 1999 before the
run up of natural gas costs.
As you can see energy costs have increased from 10 percent in 1999,
which was pretty typical for years before 1999, to 15 percent in 2002.
And what's causing this problem is natural gas price. The final chart
shows Zaclon's delivered cost per MCF of natural gas for a 15-year
period.
You can see that except for predictable seasonal swings, the price
of natural gas was stable until recent years. Since that time it is
high and unstable. This makes running our business very difficult, and
often unprofitable. Soaring energy costs combined with a tough global
marketplace represent a serious threat to Zaclon's existence.
In closing, I strongly urge you to consider carefully the impact of
what you do in this committee on the competitiveness of companies like
Zaclon. Any additional legislation that encourages fuel switching to
natural gas without addressing the supply side of the equation could
very well put me out of business.
Thank you for the opportunity to testify here today.
I would be happy to answer any questions.
__________
Statement of Richard A. Metz, UNIMARK L.L.C.
Natural Gas is the most environmentally friendly fossil fuel. On
the other hand, it is a fuel which requires special handling in order
to deliver it from the supply source to the consumer. Currently, it is
moved through pipelines, which limits the supply source to production
areas that are accessible to pipelines.\1\ This makes the United States
primarily dependent upon supply sources in North America.
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\1\For 2002 LNG imports represented 1.1 percent of the total U.S.
consumption.
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Although the supply of gas has been adequate to meet the needs of
consumers over the past 25 years, the free market price of gas today
reflects the tightening of supply/demand equation. First, the attached
graph (Exhibit ``A'', Gas Production in the United States) reflects the
daily average volume of gas (Dry Gas) produced in the United States
over the past 15 years.\2\ As you can see over this period, summer
curtailment of gas is now nonexistent.\3\ Since 1996 annual gas
production has been at more than 97 percent of peak capacity. No
additional supply exists at this time to take on additional demand.
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\2\Data source EIA Natural Gas Monthly
\3\Exhibit ``B'' details the same information in tabular form.
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There have been periods when consumer demand exceeds the supplier's
ability to meet that demand. When this occurs, the price of gas begins
to increase until the price gets to a level that an existing consumer
ceases to consume gas. This process repeats itself until the demand
level is in equilibrium with supply. The industry nomenclature for this
process is ``Demand Destruction.'' The loss of existing demand hurts
the industry affected, the suppliers, and ultimately the overall U.S.
economy. The attached graph\4\ (Exhibit ``C'') shows that since 2000
the price of gas has had periods of dramatic increases. This is another
point on the curve which demonstrates that supply/demand balance for
gas is very tight.
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\4\Exhibit ``C'' demonstrates the historic value of the ``Gas
Futures 12 Mo. Forward Average'' as traded on the NYMEX.
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Finally, the winter space heating requirements of the residential
and commercial sectors are major consumers of gas\5\ and the
consumption rate is directly tied to the winter temperatures.\6\ On a
cold day consumption can exceed 90 BCF. At the same time the U.S.
production and Canadian imports are approximately 62 BCF per day. In
order to meet this additional demand, stored gas must be withdrawn to
meet the shortfall. Exhibit ``D'' provides a historical perspective of
the withdrawal and injection into storage. The storage level for the
winter season of 2002-2003, although starting at a normal level, was
drawn down beyond the level of the prior 4 years. The first thought is:
the past winter was colder than normal. It wasn't. Exhibit ``E'' shows
the cumulative Heating Degree Days\7\ for a normal winter and for the
past winter. The past winter, although colder than most of the recent
winters, was still 4 percent warmer than normal. Therefore, the current
low storage level can't be attributed to an abnormally cold winter.
---------------------------------------------------------------------------
\5\Represent over 43 percent of total gas consumption.
\6\The demand for gas by these two sectors varies such that the
average annual consumption for 2002 was only 55 percent of the peak
monthly usage.
\7\A Heating Degree Day is a day in when the average of the high &
low temperature is less than 65 F. For example, if the high and low on
a day is 50 F and 20 F the average is 35 F, resulting in a 30 Heating
Degree Day, (30 = 65 F-35 F).
---------------------------------------------------------------------------
When the winter is over and storage is depleted, the entities
supplying gas to the residential and commercial customers have to
refill storage (fill season) in order to meet the winter demand again
next year. As things now stand (April 25, 2003), it will take an
average storage injection rate of 12.7 BCF per day during the remainder
of the fill season to get back to the storage level that existed last
year at the beginning of winter. This compares to the average fill rate
for the prior 5 years of 9.2 BCF per day. This increase in storage
demand of 3.5 BCF per day has to come from somewhere. At the current
time it can't come from the supply side, so it has to come out of
existing demand and is done so, as stated earlier, by the price of gas
increasing to the point where an existing consumer can't afford to burn
gas and, either shuts in its facility, or switches to an alternate
energy source.
If the government then mandates that electric generators have to
reduce their emissions (quick fix is replacement of coal fired
generators with gas fired ones) this will add additional demand to the
supply/demand equation and result in higher prices.
The other side of the equation is that higher prices should lead to
additional supply, either through additional drilling or increased
imports. Although increased imports (LNG) is the hot buzz word for
additional gas supplies it will be a long and slow process for LNG to
have a meaningful impact. This results in additional supplies having to
come from drilling. It is a time consuming process to find and develop
additional supplies. It is even harder when the government has declared
many onshore and offshore areas off limits for drilling. The producing
sector will fight the good fight, but it is much harder to prevail with
one hand tied behind its back.
The bottom line is additional stress on the supply of natural gas
will lead to economic displacement of industry which can't afford to
pay higher prices and still be competitive. I am confident that the
producing industry can meet the challenge of supplying gas to the
consumers, but it will have to be at higher prices. These prices will
have to be even higher if areas of this country are off limits to
exploration.
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__________
Statement of Steve Thumb, Energy Ventures Inc.
Executive Summary
The U.S. natural gas supply sector is currently being challenged to
meet the nation's demand for natural gas. This has caused natural gas
prices to increase to record levels and significant demand destruction
within the non-electric sectors for natural gas demand. The primary
reason for this phenomenon is that U.S. gas production has been
declining for each of the last six quarters. The cumulative effect of
this decline has been to reduce U.S. gas production approximately 3.5
BCFD, or 6 percent. This decline in U.S. gas production is occurring
throughout the Nation, as five of the seven major supply areas in the
U.S. are in decline.
To date the greatest degree of demand destruction has occurred
within the industrial sector, where the resulting high gas prices have
caused a number of firms to declare bankruptcy and other firms to idle
capacity. Both of these events have had an adverse effect on the U.S.
economy. To date, total demand destruction within the industrial sector
equates to approximately 5.5 BCFD, or 26 percent of total industrial
sector gas demand. Higher gas prices also have affected the residential
sector, as gas supply costs for this sector have increased
approximately $17 billion from the 5 year average for the late 1990's.
This challenge for the U.S. gas supply sector will continue over
the intermediate term, as U.S. production levels are projected to
continue to decline for some time, primarily because of the limited
increase in gas-directed drilling activity despite record gas prices.
One of the major reasons for the limited increase in drilling activity
is the limitations the industry faces in gaining access to prospective
acreage as a result of environmental restrictions and moratoria. The
potential reserves that are off limits because of these restrictions,
which are increasing rather than decreasing, has been estimated by
industry sources at between 200 and 450 TCF. Another significant reason
for the limited increase in gas-directed drilling activity is the lack
of scale for prospective exploration and development activity. Even
though undiscovered reserves exist, many of these reserves are
contained in a series of relatively small plays. Majors and large
independents need large reserve plays in order to effectively use their
staffs, impact their current production levels and effectively allocate
capital. Relying on smaller independents to develop these smaller
reserve plays has reached a point of diminishing returns because of the
downsizing of the U.S. exploration and production industry.
As a result of these and other factors, the industry will be
challenged to maintain, let alone increase, production levels from
traditional supply areas. Instead, the industry will have to rely on a
series of emerging sources of gas supply to fill any gap between supply
and demand. However, it will be an extended period of time before these
emerging sources of supply are able to make a significant contribution
to the U.S. supply sector. As a result, any acceleration in U.S. gas
demand requirements only will exacerbate the challenge for the U.S.
supply sector and lengthen the period of high gas prices and further
demand destruction in other sectors.
With respect to these emerging sources of supply, which include
deep reserves below 15,000 feet, the complex subsalt play, reserves
offshore Eastern Canada, frontier coalbed methane basins, new LNG
terminals and reserves from the Arctic areas of both Canada and the
U.S., the challenge and extended timeframe for the industry to develop
these highly complex and very capital intensive sources of supply
cannot be emphasized enough. For example, despite a number of industry
announcements concerning possible new LNG terminals, the FERC has
granted only one certificate for a new terminal and only one other
project has applied for a certificate. With respect to the potential
for Arctic gas supplies the earliest date for a completion of a
pipeline to deliver these supplies is approximately 2009 and these
supplies will be from Canada's MacKenzie Delta. Arctic gas supplies
from the Prudhoe Bay will not be available until 2013 at the earliest.
To place the potential of these massive supply projects in perspective,
the initial combined capacity of these two Arctic pipelines, net of the
incremental gas demand requirements for Canada's heavy oil sands
developments, will only be 1.3 BCFD, or 475 BCF per year, greater than
the decline in U.S. production over the last six quarters.
One of the significant impacts of the proposed increases in clean
air requirements is that it will cause coal-fired generation to be
reduced. A significant portion of this decline in coal-fired generation
will need to be made up by additional gas-fired generation. This higher
level of gas-fired generation will increase natural gas demand
requirements within the electric sector, which will further exacerbate
the challenge to the U.S. gas supply sector. This increasing dependence
of the electric sector on gas-fried generation is most evident in the
recent experience of the industry. Since 1996 gas demand within the
electric sector has increased approximately 4.7 BCFD, or 45 percent.
This is one of the major reasons for the current challenge within the
U.S. gas supply sector.
Of particular concern is both the acceleration of the target dates
for the proposed changes in clean air requirements and the increases in
the levels of emission reductions contained in some proposed
initiatives. Accelerating the time line for these changes in clean air
requirements will represent a significant challenge for the U.S. gas
supply sector, as it is improbable that the time line for the large,
complex and expensive emerging sources of gas supply required to meet
future demand increases can be accelerated. In fact, the more probable
scenario is that there will be delays in the time lines for some of
these emerging sources of supply, which has been the case for offshore
Eastern Canada.
Similarly, increasing the levels of emission reductions will cause
an even greater reduction in coal-fired generation and increases in
both gas-fired generation and gas demand within the electric sector.
This will only heighten the challenge for the gas supply sector. Of
particular concern are the carbon dioxide limitations, since the power
industry has no viable control options and must rely totally upon
switching generation to lower carbon containing fuels, of which the
most significant is natural gas. Carbon dioxide limits, because they
place an effective cap on fossil fuel generation, significantly
increase the challenge for the U.S. gas supply sector.
Of the various Clean Air Act initiatives currently being considered
S 366 (Clean Power Act of 2003) and S 843 (Clean Air Planning Act of
2003), with their accelerated time tables for emission reductions and
their large emission reduction requirements, particularly their
CO<INF>2</INF> emission reduction requirements, would represent the
greatest challenge for the U.S. gas supply sector. With respect to S
485 (Clear Skies Act of 2003) it would also present a challenge for the
U.S. gas supply sector. However, by eliminating the mandatory carbon
dioxide limitations and providing for a longer implementation period
for the required emission reductions it presents a challenge that may,
at least, be manageable.
In summary, the U.S. gas supply sector is challenged to meet
existing demand levels. This challenge, which likely will extend over
the intermediate term because of limitations associated with
traditional supply areas, has resulted in natural gas prices reaching
record levels and significant demand destruction within the non-
electric sectors for natural gas demand.
The acceleration of the proposed clean air requirement timelines
and higher levels of emission reductions will only serve to heighten
and extend this challenge to the U.S. gas supply sector, as these
changes in clean air requirements will increase gas demand in the
electric sector. Furthermore, since the gas supply sector is heavily
dependent on a series of complex and capital intensive emerging sources
of supply to meet projected increases in natural gas demand, it is
doubtful that the timeline for additional gas supplies can be
accelerated materially. In particular, the proposed carbon dioxide
limits may place the gas industry in a position where it is severely
challenged to meet the increases in electric sector gas demand
requirements. Empirical evidence to date is that when the U.S. gas
supply sector is challenged to this degree the net result is that
natural gas prices will be pushed to record levels, with all the
attendant cost increases for the other sectors, and demand destruction
within the non-electric sectors for natural gas demand.
Current Status U.S. Gas Supply
Over the last 2 years the U.S. natural gas supply sector has been
challenged to meet demand. The primary reason for this phenomenon is
that U.S. production has been declining for each of the last six
quarters, as illustrated in Exhibit 1.\1\ This decline in U.S.
production, which equates to approximately 3.5 BCFD, or 6 percent of
total production, has caused natural gas prices to reach record
levels\2\ and resulted in significant demand destruction\3\ in the non-
electric sectors for natural gas demand. The latter has impacted
adversely the U.S. economy.\4\
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\1\There also have been declines in production in Canada's Western
Canadian Sedimentary Basin as documented in ``Canada Looks to Other
Sources to Offset Steep WCSB Declines,'' Natural Gas Week, March 10,
2003, p. 16 and ``Analysts Sound the Alarm on U.S., Canadian Gas
Production'' Natural Gas Week, April 28, 2003, pp 5-6.
\2\See Exhibit A-1 in the Appendix for a summarization of natural
gas prices.
\3\The term demand destruction is used often in the natural gas
industry to describe the loss of demand as a result of high gas prices.
As discussed in subsequent sections of this paper it often involves
firms going out of business and plants idling capacity because these
entities cannot pass through the high gas costs to their customers.
\4\American Chemical Council, Background Paper on Natural Gas
Price Shocks and The Economy, February 28, 2003.
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EXHIBIT 1
U.S. NATURAL GAS PRODUCTION
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This decline in U.S. production is occurring throughout the United
States, as five of the seven major supply areas in the U.S. are in
decline.\5\ The areas in decline include the San Juan basin, the
Permian basin, the Mid-Continent area, the onshore Gulf Coast area and
the shelf of the Gulf of Mexico. Of these areas the most significant
decline has occurred in the shallow water region, or shelf, of the Gulf
of Mexico, which historically has been the most prolific producing area
in the U.S., as it at one time accounted for 26 percent of U.S.
production. The steady decline in production from the shelf of the Gulf
of Mexico is summarized in Exhibit 2. Furthermore, the recent
development of the deepwater region of the Gulf of Mexico, with its
extensive use of modern exploration and production technology, has not
been able to offset the decline in production from the shelf, and as a
result production for the entire Gulf of Mexico is declining.
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\5\See Exhibit A-2 and A-3 in the Appendix.
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EXHIBIT 2
PRODUCTION FROM SHALLOW WATERS (SHELF) IMPACT ON DEMAND
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
The supply and demand imbalance resulting from this decline in U.S.
production has caused natural gas prices to rise to record levels,
which has caused, in turn, a decline in natural gas demand. This
decline in demand has been most pronounced in the industrial sector
where firms have had to idle capacity or have gone out of business
because they can no longer compete at the current elevated prices for
natural gas. This decline in industrial activity, which has impacted
adversely the U.S. economy, has been most pronounced in the basic
chemicals and primary metals sectors, with the latter being impacted
adversely by higher gas-fired electricity prices.\6\\7\
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\6\Bankrupt fertilizer firms include Farmland (Midwest and
Louisiana), Vicksburg Chemical (MS), Agrifos (TX), Mulberry Phosphates
(FL) and Agway (Syracuse, NY). Mississippi Chemical (Yazoo City, MS)
has had a 1 year credit extension and Terra Industries (Sioux City, IA)
has acknowledged limited ability to effectively hedge future gas
prices. Mississippi Chemicals has permanently shut down its
Donaldsonville, LA plant and Air Products has ceased production at its
Pace, FL plant. (Source: Company announcements and trade press.)
\7\Currently idled aluminum plants include Alcan's West Virginia
plant, the Mead, Tacoma and Trentwood, WA plants for bankrupt Kaiser,
Alcoa's Troutdale, OR and Rockdale, TX plants, the bankrupt Longview,
WA plant and the Goldendale plant. These eight plants may never reopen.
At present in the Pacific Northwest, which is the heart of the U.S.
aluminum industry, only two plants are operating (i.e., Glencore's
Columbia Falls in Kalispell, MT at 20 percent capacity and Alcoa's
Ferndale plant in Bellingham, WA). (Source: Company announcements and
trade press.)
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With respect to the chemical industry, which accounts for over 50
percent of industrial sector demand, there has been a fundamental shift
in the competitiveness of the U.S. chemical industry versus overseas
facilities because of the higher U.S. gas prices. This has occurred
because the U.S. chemical sector is heavily based upon natural gas and
natural gas liquids, while the European and Asian chemical producers
are based heavily on oil (i.e. naphtha). Higher U.S. gas prices have
caused the ratio between gas and oil prices to shift from 0.6 in the
1990's to 1.0 at present, which has provided European and Asian
chemical producers with a competitive advantage. One example of the
impact of this shift in competitive position between these regions is
the recent closure of a Louisiana ethylene and plastics plant in order
to move operations to Germany, where gas prices are lower and more
stable.
With respect to the net impact of higher prices on industrial
sector demand, the best estimate to date is that industrial sector
demand has declined approximately 5.5 BCFD, or 26 percent, over the
last 2 years, as illustrated in Exhibit 3.\8\\9\
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\8\``As Gas Prices Increase To New Norm, Chemical Sector Could Be
Hit Hard,'' Inside FERC's Gas Market Report, February 28, 2003, pp 9-
10; and ``Chemical Analysts Grow Bearish As U.S. Sector's `Golden Era'
Closes,'' Natural Gas Week, February 24, 2003, p. 5.
\9\``Record U.S. natgas prices punish manufacturers'' Reuters,
February 25, 2003.
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Impact Of Cost
In addition to causing a reduction in demand within some sectors,
the high gas prices resulting from declining production levels have
increased substantially the costs of natural gas supply for the other
sectors. For example, in the residential sector the supply component
for residential gas costs has increased approximately $17 billion from
the 5 year average during the late 1990's.
EXHIBIT 3
INDUSTRIAL DEMAND
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Intermediate Term Outlook For U.S. Gas Supply
This challenge for the U.S. gas supply sector likely will continue
over the intermediate term, as U.S. production levels are projected by
EVA and others to continue to decline,\10\ as gas-directed drilling
activity has been slow to respond to increases in natural gas prices
and decline rates for existing production are high.\11\\12\ One of the
major reasons for the limited increase in drilling activity during this
period of elevated gas prices is the limitations the industry faces in
gaining access to prospective acreage, as a result of environmental
restrictions and moratoria.\13\ While there is tension between the
exploration and production industry and other industry observers over
the exact amount of the potential reserves that are not accessible
because of the various environmental restrictions, the figure has been
placed at approximately 200 TCF by the National Petroleum Council study
and even higher by a study conducted by Texaco (i.e., 450 TCF).
Furthermore, these environmental limitations on access to prospective
acreage are increasing rather than decreasing, even though U.S.
production is declining. Recent examples include (a) restrictions on
drilling under the Great Lakes even though Canada has done such for
years, (b) a nearly 75 percent reduction in the offshore acreage that
was planned to be offered in the Gulf of Mexico Sale 181 and (c)
Pennsylvania's access restriction of 56 percent of the acreage for the
Trenton-Black trend within that State.
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\10\``Analysts See Bullish Gas Market Rebalanced by Pricing
Factors,'' Natural Gas Week, December 30, 2002, p. 3; and ``Analysts
Sound The Alarm on U.S., Canadian Gas production,'' Natural Gas Week,
April 28, 2003, pp 5-6; and ``CERA Warns of Fragile Balance In Supply/
Demand Outlook for 2003,'' Inside FERC's Gas Market Report, February
14, 2003, p. 1.
\11\See Exhibit A-4 in the Appendix.
\12\The annual rate of decline in production from new U.S. wells
accelerated to 27 percent in 2002 from 17 percent in 1990. See ``EIA's
Rosy Gas Supply Projections in Doubt,'' Natural Gas Week, March 10,
2003, p. 9.
\13\``Witnesses Urge Greater Access As Check for Rising Gas
Prices,'' Natural Gas Week, March 3, 2003, p. 7; and ``Producers
Concerns Unheeded In New Rockies Reserves Study,'' Natural Gas Week,
January 20, 2003, p. 3-4 and ``AGA Calls For Access to Closed Areas:
Court Upholds Forest Land Closings,'' Inside FERC's Gas Market Report,
December 20, 2002, p. 16.
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Another major reason for the limited increase in gas-directed
drilling activity is the lack of scale for prospective exploration and
development activity. Even though undiscovered reserves exist, many of
these reserves are contained in a series of relatively small plays.
Majors and large independents need large reserve plays in order to
effectively use their staffs, impact their current production levels
and effectively allocate capital. It is this diminishing size and
concentration of reserve targets that led the majors away from further
development of the shallow waters in the Gulf of Mexico.\14\
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\14\``Drilling Boom Deemed Unlikely Despite Natural Gas Price
Surge,'' Natural Gas Week, March 3, 2003, p. 1.
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Relying on smaller independents to develop these smaller reserve
plays has reached a point of diminishing returns because of the
downsizing of the U.S. exploration and production (E&P) industry. For
example, the tabulation of E&P firms in the U.S. industry by the Oil
and Gas Journal has declined from 400 in 1990 to 176 at present, with
the smallest firm having assets of only $197,000.\15\
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\15\``Special Report OGJ 200/100'' Oil and Gas Journal, September
9, 2002, pp 70-90.
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As a result of these and other factors, the industry will be
challenged to maintain, let alone increase, production levels from
traditional supply areas.\16\ Instead, the industry will have to rely
on a series of emerging sources of gas supply to fill any gap between
supply and demand. However, it will be an extended period of time
before these emerging sources of supply are able to make a significant
contribution to the U.S. supply sector. As a result, any acceleration
in U.S. gas demand requirements only will exacerbate the challenge for
the U.S. supply sector and lengthen the period of high gas prices and
further demand destruction in other sectors.
---------------------------------------------------------------------------
\16\This challenge will continue to exist even during potential
periods of downward gas price volatility, which for example might occur
do to unforeseen weather events, such as very warm winter weather.
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Long-Term Outlook For U.S. Gas Supply Sector
Exhibit 4 summarizes the long-term outlook for natural gas demand
for several different forecasters. While there are some differences in
assumptions for each of these forecasts, they tend to cluster around 30
TCF for 2015.
Exhibit 4
Various Gas Demand Projects For 2015\1\
------------------------------------------------------------------------
Forecast (TCF/Year)
---------------------------------------
PIRA EEA Gil EIA EVA
------------------------------------------------------------------------
Total Gas....................... 28.8 29.3 29.4 29.5 30.5
------------------------------------------------------------------------
\1\Source: EIA, Annual Energy Outlook 2002 and EVA.
Reaching this 30 TCF level will be a major challenge for the U.S.
supply sector, as empirical evidence to date illustrates that this
level of supply cannot be attained by further development of
traditional sources of supply. Instead, the industry will have to rely
on a series of emerging sources of supply, which include the
exploration and/or development of: (1) deeper reserves (i.e., >15,000
ft), (2) the highly complex subsalt play in the Gulf of Mexico, (3)
reserves offshore Eastern Canada, (4) new coalbed methane reserves in
frontier basins, (5) new LNG terminals and (6) reserves in the Arctic
areas of both Canada and the U.S.\17\ The challenge and extended
timeframe for the industry to develop these highly complex and very
capital intensive sources of supply cannot be emphasized enough. For
example, it can take up to 9 months on a super computer to process the
seismic data associated with the subsalt play, which is still in its
infancy.\18\ Also, drilling a single well for the deep Madden play in
Wyoming, which used to take over a year, still takes over 200 days even
with the application of significant improvements in drilling
technology. Last, a string of expensive dry holes (i.e., approximately
$440MM to date) over the last 2 years in exploration for potential
reserves offshore Nova Scotia has forced the industry to reevaluate
development of the area and delay its time table.\19\
---------------------------------------------------------------------------
\17\EPRI, Gas Supply Outlook-Gauging Wellhead Deliverability Now
and in the Future (1004588), February 2002.
\18\For other non-subsalt exploration plays it typically takes
less than a month to process the associated seismic data and that is
accomplished on a basic computer.
\19\``East Coast Canada Loses Luster As Petro-Canada Abandons
Well,'' Natural Gas Week, May 5, 2003, p. 16.
---------------------------------------------------------------------------
The lengthy timeframe for some of these emerging sources of supply
is best illustrated by the time lines for new LNG terminals and the
development of a pipeline(s) for Arctic gas supplies. While the Nation
is reopening and/or expanding each of the existing four LNG terminals,
additional LNG supplies beyond the capabilities of the four terminals
will be required to meet projected demand levels. At present, despite a
number of industry announcements concerning possible new LNG terminals,
the FERC has granted only one certificate for a new LNG terminal and
only one other project has applied for a certificate. In addition,
there has been the announced cancellation of at least two proposed new
LNG terminals, as the combination of stiff resistance, primarily on
environmental grounds, and the expensive nature of these facilities
have forced several potential industry participants to reconsider their
involvement in such projects. Also, the U.S. industry has learned that
even with new LNG terminals, it will have to compete with the rest of
the world for available supplies. This tension with the rest of the
world was made very clear this last winter when, despite record U.S.
gas prices, LNG imports were limited to just 15 percent above the
levels for the winter of 2000/2001, because of high LNG demand from
Asian countries.
With respect to the possibility of Arctic gas supplies, the
construction of a gas pipeline from the Arctic region to the North
American market place will be a massive project that will task severely
the existing infrastructure of the region. At present the earliest
possible date for the first of the Arctic pipelines, which will be from
Canada's MacKenzie Delta, is the end of 2008 or early 2009.
Furthermore, it appears that approximately 75 percent of the initial
capacity of this pipeline will be required to meet Canadian gas demand
associated with its growing development of heavy oil sands
projects.\20\ Beyond this there is the possibility of the $19.4 Billion
Arctic gas pipeline from Prudhoe Bay, which is projected to be longer
than the Great Wall of China. While specifics on the timetable for this
massive project are limited, the earliest potential date for a second
Arctic gas pipeline appears to be 2013. The possibility of building
both Arctic pipelines at the same time is not even being considered by
the industry, because of inadequate infrastructure within the region.
For example, for the earlier MacKenzie Valley pipeline movements of
pipe sections will require one truck haul every 5 minutes along the
Yukon highway system and a doubling of the capacity of the White Pass
Railway. Furthermore, the tractor and trailer units for these hauls
will have to be twice the typical length of such units in order to move
the 82-foot sections of pipe.\21\
---------------------------------------------------------------------------
\20\``Canadian Energy Exports to U.S. May Slow As Capacity
Tightens,'' Natural Gas Week, April 14, 2003, p. 1.
\21\``Report Says Southern Pipe Route The More Feasible
Alternative'' Natural Gas Week, February 3, 2003, p. 4 and ``The
Aboriginal Pipeline Group'' Oil & Gas Journal, March 3, 2003, p. 8.
---------------------------------------------------------------------------
To further place the challenge to the U.S. supply in perspective,
the initial combined capacity of both of these huge Arctic gas pipeline
projects, net of the incremental demand for Canada, will be only 1.3
BCFD, or 475 BCF per year, greater than the decline in current U.S.
production over the last six quarters. Further increases in the
capacity of these projects likely will not occur until several years
after the completion of the Prudhoe Bay pipeline project (i.e.,
approximately 2015 or thereafter).
Impact Of Proposed Clean Air Requirements
One of the significant impacts of the proposed increases in clean
air requirements is that it will cause coal-fired generation to be
reduced. A significant portion of this decline in coal-fired generation
will have to be made up by additional gas-fired generation, as other
forms of generation are limited in their ability to increase
significantly.\22\ This higher level of gas-fired generation will
increase natural gas demand requirements within the electric sector,
which will further exacerbate the challenge to the U.S. gas supply
sector. This increasing dependence of the electric sector on gas-fired
generation is most evident in the recent experience of the industry.
Since 1996 gas demand within the electric sector has increased
approximately 1.7 TCF (i.e., 4.7 BCFD), or 45 percent. This is one of
the major reasons for the current challenge within the U.S. gas supply
sector.
---------------------------------------------------------------------------
\22\Dependence upon natural gas generation is directly
attributable to other power sources having only a very limited ability
to offset coal generation losses. Hydro power expansion is limited by
the lack of appropriate sites and growing permitting opposition.
Nuclear power is hindered by its very high production costs and
continuing waste disposal problems. Nor are other renewables able to
displace large coal losses because of resource limitations and high
costs. For example, areas offering Class 5-7 wind resources are very
limited and distant from load centers. Lower class wind resources are
far too expensive to develop and transmit. In addition, because wind
power units only operate at best 25 to 33 percent of the time,
additional gas-fired generation is required to supplement wind power
units in order to replace the lost base load coal-fired generation.
---------------------------------------------------------------------------
Of particular concern is both the acceleration of the target dates
for the proposed changes in clean air requirements and the increases in
the levels of emission reductions contained in some proposed
initiatives. Accelerating the time line for these changes in clean air
requirements will represent a significant challenge for the U.S. gas
supply sector, as it is improbable that the time line for the large,
complex and expensive emerging sources of gas supply that will be
required to meet future demand increases can be accelerated. In fact,
the more probable scenario is that there will be delays in the time
lines for some of these emerging sources of supply, which has been the
case for the development of the region offshore Eastern Canada.
Similarly, increasing the levels of emission reductions will cause
an even greater reduction in coal-fired generation and increases in
both gas-fired generation and gas demand within the electric sector.
This will only heighten the challenge for the gas supply sector. Of
particular concern are the carbon dioxide limitations since the power
industry has no viable control options and must rely totally upon
switching generation to lower carbon containing fuels, of which the
most significant is natural gas. Carbon dioxide limits, because they
place an effective cap on fossil fuel generation, significantly
increase the challenge for the U.S. gas supply sector.
If the natural gas supply sector is not capable of meeting the
challenge of increased gas demand within the electric sector, as a
result either of an accelerated time table for new clean air
requirements or the increased emission reduction levels proposed in
some initiatives, then the alternative is for an extended period of
high gas prices and demand destruction within the other sectors for
natural gas demand. Both these latter items will have an adverse impact
on the U.S. economy. From one perspective this alternative is a mirror
image of what is currently occurring within the U.S. gas industry.
Current Clean Air Act Initiatives
The three Senate proposals have significantly different impacts on
the natural gas industry. S 366 (Clean Power Act of 2003) poses by far
the largest natural gas supply challenge because (1) its much tighter
carbon dioxide and SO<INF>2</INF> limitations create the greatest
demand shifts toward natural gas; (2) its much shorter compliance
period gives the gas supply industry the least time to expand its
supply base; (3) its much tighter mercury limit is heavily dependent
upon mercury control technology performance that has not been
commercially demonstrated yet and may force the shutdown of a large
portion of the existing coal power plant fleet; and (4) its new source
standards forces the greatest amount of older coal based capacity to be
retired.
In comparison to S 366, S 834 (Clean Air Planning Act of 2003) will
reduce the challenge to the natural gas supply sector by phasing in
slightly higher limitations over a longer period (i.e., four additional
years). Its longer scheduled compliance period allows the natural gas
industry valuable time to expand its supply base, while reducing
natural gas demand pressure by permitting greater coal generation with
its alternative emission limitations. Also, mercury technology risk is
greatly reduced, as limitations are more in line with current DOE
research targets.
Finally, S 485 (Clear Skies Act of 2003) also presents a challenge
for the U.S. gas supply sector. However, by eliminating mandatory
carbon dioxide limitations and providing for longer periods for
implementing the required emission reductions, it presents a challenge
that may, at least, be manageable.
Conclusions
Currently the U.S. gas supply sector is challenged to meet existing
demand levels. This challenge, which likely will extend over the
intermediate term because of limitations associated with traditional
supply areas, has resulted in natural gas prices reaching record levels
and significant demand destruction within the non-electric sectors for
natural gas demand.
The acceleration of the proposed clean air requirement time lines
and higher levels of emission reductions will only serve to heighten
and extend this challenge to the U.S. gas supply sector, as these
changes in clean air requirements will increase gas demand in the
electric sector. Furthermore, since the gas supply sector is heavily
dependent on a series of complex and capital intensive emerging sources
of supply to meet projected increases in natural gas demand, it is
doubtful that the timeline for additional gas supplies can be
accelerated materially. In particular, the proposed carbon dioxide
limits may place the gas industry in a position where it is severely
challenged to meet the increases in electric sector gas demand
requirements. Empirical evidence to date is that when the U.S. gas
supply sector is challenged to this degree that the net result is that
natural gas prices will be pushed to record levels, with all the
attendant cost increases for the other sectors, and demand destruction
within non-electric sector for natural gas demand.
APPENDIX
Exhibit A-1
HENRY HUB NATURAL GAS PRICE WEEKLY DATA
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
Exhibit A-2
PRODUCTION FROM SELECTED REGIONS I
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
Exhibit A-3
PRODUCTION FROM SELECTED REGIONS II
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
Exhibit A-4
RIG COUNT FOR GAS WELLS
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
RIG COUNT FOR THE GULF OF MEXICO
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
__________
Statement of the American Chemistry Council
The American Chemistry Council welcomes this opportunity to comment
on the Clear Skies Act as it relates to the all-important issue of
natural gas supply and demand. Our country's standard of living and the
economic health of our citizens and our industries that provide the
wealth of our jobs are tied intimately with the energy supply including
a competitively priced natural gas component.
It is impossible to discuss the benefits of Clear Skies legislation
without first asking Congress how it plans to address the larger issue
of restoring balance to the natural gas markets.
Over the past decade, environmental legislation and policies, like
the Clean Air Act, have had the effect of triggering a dramatic run-up
in demand for natural gas. Other environmental policies have put the
nation's most promising natural gas reserves off limits. As a result,
all consumers are hurt by the high prices that result from the
increased demand and shrinking natural gas supply.
American manufacturers are being priced out of the marketplace.
Plants are closing. Jobs are moving overseas. Over 35,000 well paying
jobs in the chemical industry are at risk due to the latest run-up of
natural gas prices and sustained natural gas prices of over $6.00/MMBtu
will threaten over 200,000 jobs economy wide. Natural gas pricing
forecasts call for more of the same.
At the end of the day, the real environmental benefits that could
be achieved by Clear Skies legislation will mean little to American
manufacturers, if current energy policies continue, and more
manufacturers and jobs are driven off shore because America now has the
world's highest energy prices.
The Natural Gas Crisis
Last month an energy-consulting firm, Energy and Environmental
Analysis, issued a report saying that, ``US natural gas prices will
average $6.00/MMBtu at Henry Hub through the current storage injection
season.''
Prices next winter will increase further, averaging $6.40 from
November through March and peaking as high as $6.60 between December
and February, the firm said. ``Declining gas productive capacity due to
the anemic drilling activity in 2002 has resulted in extremely tight
market conditions,'' EEA said in its monthly report.
Those US prices are more than double the price of natural gas in
Europe, more than triple the price in parts of Asia, and nearly ten
times the price of natural gas in the Middle East, North Africa,
Russia, and Venezuela.
Natural gas is a regional commodity, but industries that depend on
natural gas compete in a global marketplace. The chemical industry is
an example. Chemical makers use natural gas to power their plants and
as a raw material that is converted into plastics, fibers and other
materials that are bought and sold around the world. In recent years,
when the price of natural gas was at its historic average, the chemical
industry posted a $20 billion trade surplus. Today, the US is net
importer of chemicals. Today, the US is the world's high cost producer
of chemicals because it pays the highest prices for natural gas. With
its competitive advantage gone, US chemical production capacity is
being shut down and thousands of good-paying jobs are moving overseas.
What's happening to natural gas is simple--the oft proven laws of
supply and demand at work. Demand for natural gas is booming and supply
is declining. The gap is growing rapidly and, as a result, the price of
natural gas has tripled since 1999. Compounding the problem--the
inventory of natural gas is now at historic lows. These inventories are
unlikely to be replenished over the summer to a level sufficient to
drive down prices in the face of next winter's heating demand.
What America faces is not a seasonal disturbance, but a fundamental
structural imbalance in supply and demand for natural gas. America has
developed a tremendous demand for natural gas. It is clean. It is
efficient. It is critical to making important products Americans use
every day. And until recently, it was abundant and competitively
priced.
Consumers demand it for heating their homes. Half of new homes are
now heated by gas. Environmentalists demand it because it is clean
burning. Industries, including the chemical industry, demand it because
it is an excellent raw material for making thousands of products that
we each use, every day.
More recently the electric utility sector of the US economy has
turned to natural gas. Because of the low capital costs, shorter
construction lead times, and environmental policies, natural gas used
to generate electricity has increased by 35 percent in the past 5
years. Natural gas consumption for electricity generation is projected
to increase from 5.3 trillion cubic feet in 2001 to 10.6 trillion cubic
feet in 2025.
America's economy is becoming one that is increasingly reliant on
natural gas.
Natural gas prices and subsequent impacts leave us with questions
about how much Clear Skies will help our situation. While Clear Skies
could slow the drive to natural gas for power generation, and could
even promote clean coal technologies for future generating capacity,
additional action is needed. Environmental policies like Clear Skies
will have little bearing on businesses like ours if our operations
continue to be driven off-shore by runaway energy prices.
Congress Needs to Act
Unfortunately, the nation's current natural gas supply is running
low. Production capacity is lower today than it was 30 years ago when
Americans were consuming far less natural gas.
The paradox is that America has adequate domestic natural gas
reserves to meet current and future needs. Unfortunately, Congress
won't allow access to those natural gas reserves. The most promising--
and desperately needed--reserves are currently off-limits to
development. Many of these reserves are in partially restricted areas
like the northern Rocky Mountains, Alaska, or in fully restricted areas
such as the eastern Gulf of Mexico and off the East and West Coasts.
In the final analysis, the natural gas crisis is a domestic
political and public policy problem. Environmental policies are driving
new demand for gas to generate electricity and heat homes. Other
environmentally driven policies keep critically needed supplies off
limits. As a Nation, we can't have it both ways. We can't demand more
natural gas and continue to cutoff the natural gas supply.
Natural Gas Implications for the Clear Skies Act
This economic and energy context shapes how we look at
environmental policies like Clear Skies. National air quality policies
have sharply accelerated the switch from coal to natural gas by
electricity generators. The Clear Skies proposal, in its current form,
has the potential to slow the stampede from coal to gas and to
partially help secure a period of more stable, diverse and sustainable
supply of competitively priced energy.
Clear Skies does not go far enough, however, to promote the
development and use of clean coal technologies for future generating
capacity. Clear Skies largely supports the continued use of existing
generating capacity with add-on technology controls, but does little to
encourage the adoption of control technologies that will actually grow
the use of coal in America and mitigate the demands on natural gas.
When compared to other multipollutant legislation that has been
introduced, Clear Skies would best promote continued fuel diversity.
Clear Skies attempts to balance the demand for continued Clean Air
progress with maintaining energy diversity. The debate surrounding the
introduction of Clear Skies highlights this delicate and tenuous
balancing act--even minor changes to the bill could drive utilities to
switch to natural gas.
Clear Skies does not put mandatory controls on CO2 emissions. If
Congress does enact mandatory CO2 controls, the days of coal-fired
power generation are numbered. Coal, the one domestically abundant
energy source that keeps energy prices in reasonable balance will no
longer be used. Natural gas prices will skyrocket with even greater
demand and subsequent shortages of supply. The three-pollutant
approach, described in Clear Skies with implementation carried out over
a reasonable timeframe will enable utilities to make use of the latest
clean coal technology and move forward with development of additional
coal technologies.
The right timelines also could enable power generators to maintain
their diverse fuel base, and assure market entry of advanced fossil
technologies, including natural gas and coal technologies. The same
holds true for timelines and stringency chosen to control mercury
emissions. Too tight a timeline or too stringent mercury reduction will
force utilities to fuel-switch.
Clear Skies should provide an exemption for all energy efficient
and low-emitting combined heat and power (CHP) generators. Many of our
member companies rely heavily on CHP systems to provide the steam and
electricity for internal manufacturing processes. These systems are
universally recognized as being ultra-efficient when compared to
traditional fossil fueled utility power generators because they capture
the heat from the electricity generation process for use in the host
chemical plant. Today's systems can reach or exceed efficiencies as
high as 80 percent, nearly twice that of the best combined-cycle gas
fired utility generator. Obviously getting twice the energy outputs
from the same energy inputs is beneficial. Congress should be
encouraging greater CHP usage by commercial, industrial and residential
interests.
The American Chemistry Council has not yet finalized our position
on Clear Skies legislation as environmental policy. But Clear Skies
also has implications on national energy policy, and in that regard,
our position is clear: Clear Skies can slow the stampede in power
generation from coal to natural gas and Clear Skies can help America
maintain a more diverse fuel base. But Clear Skies cannot, by itself,
restore balance to natural gas markets and it will not stop new
generating capacity from being almost exclusively natural gas fired and
increasing the price of natural gas. Last, Clear Skies alone cannot
make American manufacturing more competitive and help our economy
regain and maintain its strength in global markets by lowering energy
prices.
Congress must open up the domestic natural gas supply and restore
balance to our nation's fuel diversity. A strong long-term economy that
includes an energy policy that improves the economic well being of all
citizens must be coupled with the actions that lead to improved health
and environment.
__________
Statement of Joel Bluestein, President, Energy and Environmental
Analysis, Inc.
Summary of Testimony
Natural gas prices are likely to be higher in the future than in
the last 15 years and power generation is the fastest growing component
of natural gas demand. New multipollutant regulations are not a primary
driver for the increase in gas prices, however. In addition, higher gas
prices are likely to reduce the potential for wide-spread switching
from gas to goal as a result of increased regulation. Finally, a
gradually implemented multipollutant program that rewards the
development and implementation of new technology could promote a more
balanced mix of power generation assets and help avoid over-reliance on
gas.
Introduction
Thank you Mr. Chairman and members of the Subcommittee for the
opportunity to testify today. My name is Joel Bluestein and I am the
President of Energy and Environmental Analysis, Inc. EEA is located in
Arlington, Virginia and has been providing energy and environmental
consulting services since 1974. Among our major areas of expertise are:
<bullet> Analyzing and forecasting the supply, demand and price of
natural gas
<bullet> Analyzing the impacts of regulatory policy on energy
markets
<bullet> Analyzing new energy technologies in the context of
environmental regulations.
We have done this work for natural gas producers, pipelines, local
distribution companies, power generators, technology developers, the
U.S. Department of Energy, the U.S. Environmental Protection Agency and
other public, private and institutional clients. I have been at EEA for
14 years and have over 20 years of experience in the energy and
environmental field.
Today I'd like to briefly share with you our current outlook on
supply and price of natural gas in North America and some views on the
relationship between that outlook and multipollutant legislation.
Gas Price Forecast
EEA quarterly prepares a 20 year forecast of North American natural
gas supply, demand and price that we call our Natural Gas Compass.
Figure 1 summarizes our current view of the price for natural gas over
that period. It shows that we expect gas prices at the Henry Hub to
average about $5.70/MMBtu (in constant 2002 dollars) for the next 2
years and decline to a level around $4.50/MMBtu for the remainder of
the period except for brief periods later in the forecast.
This is a significant increase from gas prices over the last 15
years, which have mostly stayed below $2.50/MMBtu. The roots of this
change have been quite visible in the last few years and reflect the
end of the ``gas bubble'' of the 1990's or more precisely the fact that
the balance of supply and demand for natural gas has been growing
tighter in recent years. A tighter balance between supply and demand
results in higher prices and increased volatility. This does not mean
that we are ``running out'' of natural gas, it does mean that gas
producers need to look further afield and spend more money to meet the
demand for gas, and that is reflected in the price.
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
Our forecast includes new development of natural gas in several
U.S. areas including Alaska, the deep Gulf of Mexico and the Rockies as
well as imports from the Mackenzie Delta in Western Canada and the
Maritimes area off of Canada's east coast. We also project increased
imports of liquefied natural gas (LNG) through the four existing LNG
terminals and the addition of several new LNG terminals in the later
part of the forecast. Finally, we project that adequate pipeline
capacity must be constructed to bring the gas to places where it is
needed.
This scenario reflects what we see as a realistic though
challenging period of growth for the natural gas industry. It requires
very large investments of capital, though not more than has been
invested in the past. It also requires a variety of positive policy
decisions such as support for an Alaskan gas pipeline, development of
LNG terminals, construction of other new pipelines, etc. If any of
these does not occur, the price forecast is higher. One might say that
there is more upside potential than downside on gas prices.
This price forecast is driven by the consumption of natural gas
growing from 22.3 trillion cubic feet (Tcf) in 2002 to 28.2 Tcf in 2015
and 30.4 Tcf in 2020. The largest portion of this growth is in the
power generation sector, growing from 4.3 Tcf in 2002 to 8.4 Tcf in
2015 and 9.5 Tcf in 2020. While there is some variation, these
consumption projections are not significantly different from those
developed by other forecasters, including the U.S. Energy Information
Administration.
So I agree with the basics of much of what has been said on this
topic:
<bullet> The gas supply/demand balance has gotten tighter and will
remain tight.
<bullet> Gas prices will be higher than in recent history, perhaps
significantly higher.
<bullet> Power generation will be the major growth sector for gas
demand.
Relationship to Multipollutant Regulation
The question of how we can best and most appropriately ensure an
adequate gas supply is a complex and important one that is already
being addressed in other forums. I think the question for today is:
``What does this gas price outlook say about environmental regulation
of the power generation sector?"
The EEA forecast does not include any significant switching from
coal to gas in the power generation sector. We do include the large
amount of new gas-fired generation that has been built in recent years,
about 150 GW from 1998 through 2002, and continued construction of new
gas capacity in the near future. We also project new coal capacity
coming on line, mostly after 2010.
It must be pointed out that, in certain areas, this new gas
capacity actually reduces gas consumption by replacing older, less
efficient gas generation. We have seen old gas plants retired in Texas
because they cannot compete with the new, more efficient gas plants.
It's been estimated that replacing all of the old gas plants in Texas
with new, state-of-the-art gas combined cycle plants could reduce gas
consumption for power generation by over 200 Bcf per year. The use of
even more efficient combined heat and power (CHP) can make this
reduction even greater. The same is true in other parts of the
Southwest, as well as parts of the West, South and Northeast. In some
States where markets have not opened up yet, this potential is
currently being lost because incumbent utilities can choose to dispatch
their old less efficient plants rather than the new plants.
There seems to be a lot of concern that, either on its own or due
to various environmental restrictions, the demand for gas for power
generation will inexorably grow until it threatens our economy. I think
this concern is overstated and unfounded, certainly as regards the
power generation sector. Although we see continued growth in new gas-
fired generation, we do not expect massive switching from coal to gas
under any 3-P regulatory scenario currently being discussed.
At the gas prices we are forecasting, switching to gas will not be
the most economic choice except for the least economic, highest cost-
of-control coal plants. The capital cost of a new combined cycle plant
is much less than a new coal plant, but still much more than the cost
of even a complicated control retrofit at most coal plants. And then,
the cost of fuel for even an efficient new combined cycle gas plant at
$4.50/MMBtu is over $30/MWh. This is almost three times the fuel cost
for even an inefficient coal plant burning coal at $1/MMBtu or less.
There is a lot of money to be made on the coal side of that
competition. This is reflected in the U.S.
EPA's extensive modeling of regulatory scenarios in which they are
hard-pressed to show any significant switching to gas even with gas
prices two or three times lower than the prices we are forecasting.
The higher gas prices go, the better the economics of coal look. We
might have greater concern over switching if there were no way to burn
coal efficiently and cleanly. But this is not the case. There are many
coal plants today that efficiently and economically limit their
SO<INF>2</INF> and NOx emissions and are highly competitive in the
market. New coal plants being built are even cleaner. New coal
technologies being developed, such as integrated gasification combined
cycle plants, are cleaner and more efficient yet.
New technology is vital to addressing control additional pollutants
such as mercury or even CO<INF>2</INF>. The concern then becomes
whether the appropriate technologies will be available to provide
adequate reductions. In the history of pollution control programs,
industry has always found ways to control pollution more effectively
and less expensively than originally thought possible. But that may be
little comfort to plant owners who face a new set of pollution control
challenges.
Multipollutant programs like the Clear Skies Act and those proposed
by Senator Jeffords and Senators Carper, Chafee and Gregg, despite
differences in detail which I don't propose to address, all will likely
help the development of new, clean coal generation by providing
increased regulatory certainty and flexibility to find effective
compliance solutions. Emission cap and trade programs provide a variety
of tools to address the problem, including: the timing and stringency
of the cap, cost mitigation measures and availability of off-sector
trading.
One shortcoming of the Clear Skies Act in supporting new technology
is that the ``grandfathering'' approach to allowance allocation
disadvantages new plants in general and new coal plants in particular.
The failure to allocate allowances to new coal plants creates a
disincentive for companies to develop these plants and drives the power
sector more toward gas. An allocation approach that includes new plants
and rewards efficiency is one way to help ensure that we can continue
to rely on our substantial coal resources.
I agree with those who endorse phased implementation of emission
caps. However, I would add that starting the programs earlier and
phasing them in more gradually is critical to ensuring the availability
of appropriate technology. Development of new technology requires a
driver, which in this case is regulation. Then technology development
needs money and time for research, development and commercialization.
Command and control programs and cap and trade programs with large
reduction steps don't provide enough time for technology development.
However, delaying the imposition of the regulation doesn't provide a
sufficient driver for development. A series of gradual steps can jump-
start technology development and keep it moving.
This can be illustrated for the topic that probably creates the
greatest concern for over-reliance on natural gas--CO<INF>2</INF>
reduction. I think it's clear that switching to gas alone is not an
adequate approach to CO<INF>2</INF> mitigation. CO<INF>2</INF>
reduction will require a mix of gas, renewable, and advanced coal
technologies such as integrated gasification combined cycle with
sequestration or coal-based hydrogen production, combined heat and
power and other efficiency measures. Overly aggressive near-term
reduction requirements will not help us promote the development of new
technologies. On the other hand, neither will continued delay of
regulation. The point was made at the last hearing on this topic that
delay in addressing CO<INF>2</INF> regulation is one more reason that
companies are reluctant to construct new coal capacity today. Finally,
the long-term reduction goals required to address climate change are
much greater than the levels currently being discussed even in 4-P
legislation and must be recognized early to provide the right
direction.
Figure 2 shows a cap and trade approach that applies gradual
CO<INF>2</INF> reductions to jump-start technology development and
promote long-term solutions while avoiding near-term economic
distruption, including excessive switching to gas. In fact, in this
approach, the emission cap increases for the first several yars, then
levels off and begins a very gradual decline. It is designed to reach
an 80 percent CO<INF>2</INF> reduction by 2060, which is calibrated to
meeting a 450 part per million (pp) atmospheric CO<INF>2</INF> level.
An economic "circuit breaker" could be used during the declining
portion of the program to adjust the rate of decline and avoid economic
disruptions.
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
This approach would send an immediate signal that new technology is
required and provide financial support for new technology through an
immediate, active market in CO<INF>2</INF> allowances, even though
reductions are not immediately required. It would provide immediate
financial return for ``no regrets'', voluntary actions while reducing
the transaction cost and verification concerns. The schedule would also
avoid any immediate devaluation of existing assets, since major
reductions don't start until 2015. At the same time it makes a
commitment to meet the long-term goals. More information on this
approach is included as Attachment A. A similar, less gradual approach
could be used to promote new technology for mercury control.
Conclusion
In conclusion, we do see higher gas prices in the future,
regardless of what regulations are imposed on the power generation
sector. This increase and its implications need to be addressed
separately from their implications on multipollutant regulation.
However, higher gas prices will increase the value of new, clean,
efficient coal technologies. We need to continue the use of coal as a
major component of our power generating mix. However, the future of
coal-based generation should not be the continued use of 50 year old
plants but rather the construction of new, more advanced coal
technologies. That, in fact, is probably the long-term path to wider
use of coal in our economy through the development of coal-based liquid
fuels or hydrogen. Multipollutant legislation can encourage the
development of those technologies by providing equitable allowance
allocations for new plants and by setting gradually declining emission
caps from an early starting point.
Thank you again for this opportunity to speak and I'll be happy to
respond to any questions at the appropriate time.
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
CLEAR SKIES ACT OF 2003
----------
THURSDAY, JUNE 5, 2003
U.S. Senate,
Committee on Environment and Public Works,
Subcommittee on Clean Air, Climate Change and Nuclear
Safety,
Washington, DC.
The subcommittee met, pursuant to notice, at 9:35 a.m. in
room 406, Senate Dirksen Building, Hon. George V. Voinovich
[chairman of the subcommittee] presiding.
REVIEW OF EMISSIONS CONTROL TECHNOLOGIES AND UTILITY-SECTOR INVESTMENT
ISSUES
Present: Senators Voinovich, Carper, Thomas, Cornyn, and
Inhofe [ex officio].
OPENING STATEMENT OF HON. GEORGE V. VOINOVICH, U.S. SENATOR
FROM THE STATE OF OHIO
Senator Voinovich. Good morning. The hearing will please
come to order.
This is the third hearing we've had on the Clear Skies Act,
S. 485 and continues a discussion that we have had in this
committee for several years on the complex issues on how to
clear our air by reducing emissions without doing irreparable
harm to our economy and this country's competitive position in
the global marketplace.
Today's hearing will focus on the issues surrounding
current and projected emissions control technologies and their
impact on utility sector investments. Several times throughout
the course of these hearings I have stated that we need to
enact a comprehensive energy policy that harmonizes the needs
of our economy and our environment. We cannot forget that one
of the major reasons that we have been successful economically
and competitively in the world marketplace is our ability to
purchase reliable, affordable energy supplies.
We must also keep in mind that we must do better in
protecting the quality of our air. Despite the fact that the
Clean Air Act has been extremely successful in reducing
emissions of pollution, emissions of all criteria pollutant
have been reduced by 29 percent since the Act was passed,
despite that fact that both electricity and energy use have
both increased significantly over the same period of time, the
fact is, there is still significant room for improvement, and
that's why this legislation has been introduced.
As we look at the issues surrounding emission control
technologies and the financial stability of our utility sector,
it is very clear that the nexus between the environment and the
economy is rather than an academic or political exercise, a
very real issue for those who will be affected by the decisions
we make on this committee and in the Senate.
The Clear Skies Act establishes legislative emission caps
for SO<INF>2</INF>, NOx, and mercury that will require
utilities to reduce their emissions of these pollutants by
approximately 70 percent by 2018. In order to meet these
reduction requirements, utilities will need to rely on
different technologies to capture each of the pollutants. The
primary technology used by utilities to reduce SO<INF>2</INF>
is the flue gas desulfurization, FGT unit, which we like to
call, easier, scrubbers, which can achieve about a 95 percent
reduction in SO<INF>2</INF> emissions.
Utilities that need to reduce NOx emissions generally
install selective catalytic reduction, SR units, which can
remove about 90 percent of the NOx in our power plants. In
order to reduce emissions of mercury, utilities must rely on
the combination of scrubbers, SCRs and other emission reduction
technologies that are currently available until new mercury
specific technologies are brought on line. The level of mercury
removal from this method depends on a combination of control
technologies used and the rank of the type of coal, bituminous,
subbituminous or lignite, and composition or chlorine level of
the coal.
Investor owned utilities, co-ops and municipal generators,
in conjunction with the Administration and others in the public
sector, are currently working on the development of several new
mercury specific control technologies, including activated
carbon injection, clean coal technologies and integrated coal
gasification combined cycle technologies. However,
demonstration projects using these technologies are in their
infancy and results have varied greatly.
The technologies that utilities, co-ops and municipal
generators have to install in order to meet the Clean Air
requirements constitute major capital investment for these
entities. I can recall when I first became Governor of Ohio
that we put in place a plan that helped AEP to add scrubbers to
their Gavin plant in order to reduce SO<INF>2</INF> emissions.
Those scrubbers at that time cost over $675 million, a decade
ago. I also understand that AEP has recently installed SCRs at
Gavin in order to reduce NOx emissions at an additional cost of
over $250 million.
Although the capital expenses that generators have had to
install to date are high, the projected expenses for installing
new equipment to meet new EPA regulations will be even greater.
I understand that over 100,000 megawatts of coal power plant
capacity will have to be retrofitted with SCRs by 2005 in order
to meet the requirements of the NOx SIP call, which they're all
going to make or try to make.
Additional equipment will be required to meet EPA's new
standards for ozone and particulate matter which will go into
effect in 2004-2005. Further, EPA is set to propose a new rule
on the mercury MACT next year, that will require significant
reductions in mercury emissions by 2008, despite the fact that
we don't have any mercury-specific reduction technologies
available to install.
It is understandable why many people feel the environmental
policies that have been developed over the last decade have
focused more on eliminating coal-based generation than
eliminating emissions. This is despite the fact that over 50
percent of our electricity generation is coal based and that we
have over 250 years worth of coal available domestically. These
tremendous capital expenses for installation of emissions
reduction technologies have direct impact on generators'
ability to provide reliable, affordable electricity to
residential, industrial and manufacturing customers. Utilities,
co-ops, municipal generators that rely on coal for a large
percentage of their generation are facing the choice of either
investing hundreds of millions of dollars on emission control
technologies or fuel switching to natural gas in order to meet
air quality standards.
Further, the California electricity crisis, the recent
energy trading scandals, the significant increases in natural
gas prices, have left utilities financially strapped and forced
several major energy companies to declare bankruptcy. The end
result will be inevitably higher energy prices and a drag in
our economy. All sides in the debate on multi-pollutant
legislation agree that the current approach to regulation
utilized by EPA is plagued with burdensome, overlapping
regulations that are subject to costly and time consuming
litigation and have become unnecessarily costly.
In the first hearing on this topic, I stated that there are
now more than a dozen separate regulations on the books for
sulfur dioxide and nitrogen oxide, with additional regulations
around the corner. We also discussed the fact that litigation
over several of these regulations has already delayed their
implementation, forestalling the air quality benefits that they
were designed to achieve. The patchwork of existing and soon to
be implemented regulations, coupled with the delays bred by
continuous litigation, has created enormous uncertainty for
utilities, co-ops and municipal generators, and has stymied
efforts to improve the environment. This uncertainty has
curtailed investments in technologies that would reduce
emissions at existing plants, prevented numerous new facilities
from coming on line and caused several utilities to consider
phasing out coal based generation altogether by fuel switching.
With the implementation of the Clean Air Act provisions,
other Federal environmental regulations and State clean air
laws, they combine to create uncertainty for electricity
generators. They have a tremendous impact on the ability of
private sector utilities to raise capital and make strategic
long term investment decisions, such as decisions on the
purchase and installation of emission control technologies.
It's absolutely imperative that we act to pass legislation
that will bring sanity to our environmental policy and prevent
situations like this from taking place. Clear Skies will
eliminate many of the problems that have arisen from EPA's
implementation of the Clean Air Act. It will result in
significant emission reductions and protect our air quality and
public health. It will provide generators with a realistic and
certain time table to meet emission standards. And it will
ensure that they can continue to provide affordable, reliable
electricity to residential, industrial and manufacturing
customers and move forward with the emissions reductions.
As I mentioned at the beginning of my remarks, this is the
third hearing on Clear Skies. I intend to mark up Clear Skies
at the next subcommittee level as soon as possible. And I want
to restate my firm commitment to push hard to have the full
committee report a bill to the floor and to have the Senate
pass it this Congress.
I want to thank our first witness this morning, Chairman
Kroszner, for coming to present the Administration's take on
these vital issues to the subcommittee. I also look forward to
the testimony of our other witnesses. I'd like to make it very,
very clear that we are going to stick, I'm going to be very
fastidious about the 5 minute rule, because we have a lot of
witnesses today, we want to move along and I may, if we get to
the third panel, even require that it be less than 5 minutes.
But we'll see how things move along this morning.
I would now like to call on the ranking member of this
committee, Senator Carper.
OPENING STATEMENT OF HON. THOMAS R. CARPER, U.S. SENATOR FROM
THE STATE OF DELAWARE
Senator Carper. Thanks, Mr. Chairman. Good morning to our
chairman of the full committee, Senator Inhofe, good morning.
And to our first witness and other who will follow, glad you
are here. It looks like it's standing room only here in our
hearing room. That's a great thing.
Mr. Chairman, I want to start off by thanking you and your
staff for working with us as we have gone through the gyrations
of the last week or so trying to figure out how many witnesses
we were going to have. I'm most grateful for the way that
you've approached this. I think we've got a great lineup and
we're looking forward to learn a lot from them and from one
another as we prepare to mark up.
I especially want to welcome a couple of folks from
Delaware who are here. One of our witnesses is from W.L. Gore,
and they're going to be sharing with us some of the technology,
exciting technology that they've developed in their testing and
implementing around the country with respect to controlling
emissions of mercury. Chris Koons, who works with W.L. Gore,
was good enough to set up a briefing earlier this year and
maybe late last year. One of the people who showed us their new
technology is Rick Bucher, who's going to be sharing that with
us again today. That technology apparently removes as much as
90 percent of mercury emissions from coal-fired plants. That
got my attention and I think we'll be interested in hearing
what they have to say.
I'm told that Chris Koons going to play the role of Vanna
White in working with the visual aids. That will be an
interesting role for her. Thank you both for coming.
And it's these kinds of technologies that I think move us
and help move our country and the Congress toward a cleaner
environment, which we all want to support.
I'm also looking forward to the third panel, when we'll
have the opportunity to hear maybe for the first time before a
Senate committee an aspect of this debate that we've not
previously considered, and that is the view of this issue,
particularly the issue of global warming, for investors,
investors who invest in the utility industry.
One week ago today in the New York Times there was an
article in the business section that I'd like to quote from
briefly, and then Mr. Chairman, I'm going to ask consent that
the full article be entered into the record. It was written by
a woman whose name is Catherine Seely, I hope I've got that
right, if she's listening or watching. But she said this, she
said, ``Almost a quarter of the shareholders of the Southern
Company, one of the Nation's largest utilities, voted at an
annual meeting today to require the company to analyze and
report on the potential financial risks associated with its
emissions of the pollutants that cause global warming.''
The article goes on to say that last year similar
resolutions concerning global warming garnered an average
support of 18 percent, while this year the average has grown to
more than 25 percent. More and more companies are beginning to
face such questions about their environmental record for
investors while here in Congress we continue to discuss new
legislative strategies to clean up our air. On Wall Street,
there is a growing call for companies to recognize that
emissions, including CO<INF>2</INF> and those that lead to
global warming, should be addressed. An increasing number of
shareholders who vote with their dollars are beginning to
invest their capital based on how companies are addressing
these issues. And those shareholders and the companies are
looking to us for a signal on what will come.
While today's hearing focuses on the Clear Skies Act, I
want to remind the committee that along with Senators Chafee
and Gregg, I've introduced a Clean Air Planning Act, which
represents what we think is a sensible solution to this
problem. The bill would provide a market based and flexible
approach to regulating CO<INF>2</INF>, NOx, mercury and
SO<INF>2</INF> emissions, while continuing to provide
affordable and reliable electricity.
And I'd be remiss if I didn't take just a moment, Mr.
Chairman, to say something about our good friend Christy
Whitman, I always address her as Governor Whitman when she
comes before this panel, who since her last hearing announced
her plans to step down as the Director of EPA. I will miss her
personally, and I certainly wish her and her family the very
best in all that lies ahead, and I wish President Bush, another
old Governor, some good luck in nominating a replacement who is
as capable and as cooperative as Governor Whitman has been on
many issues that we've dealt with her together. She's been a
strong advocate for moving a multi-pollutant bill through this
committee and through the Senate, and I hope we can meet that
challenge even after she's gone.
I also hope that before she leaves, she'll be able to
respond to the requests that Senators Chafee and Gregg and I
made to her this past April, when we asked for an analysis of
the Clean Air Planning Act. And to date, we've not received it.
Having that information we think is critical to our ability and
this committee's to evaluate alternative options and to develop
effective legislation.
Mr. Chairman, let me conclude with this. Something I said
at our first hearing on this topic, I just want to repeat it, I
said it I think when Governor Whitman was before us, and here
it is. We should agree on at least a set of principles to guide
us as we move forward, and I again offer the following four
principles.
No. 1, and four is better than three, a comprehensive four
mission strategy that includes carbon reductions will provide
regulatory certainty and offer the greatest environmental and
economic benefits. No. 2, markets work. Cap-and-trade-based
emissions standards provide the maximum incentive to achieve
cleaner power.
No. 3, stairs are better than cliffs. Prompt but gradual
reductions through multi-phase or declining caps are more
desirable than single phase cuts. And last but not least, No.
4, eliminate redundancy only when emission reductions are
secured. Existing regulatory programs such as new source review
will need some modernization in light of tight emission caps.
Well, that's it. I look forward to the hearing. It's going
to be a good one, and Mr. Chairman and all our witnesses, thank
you all for making it possible.
Senator Voinovich. Thanks very much, Senator Carper.
I'd like to call on the chairman of our committee, Jim
Inhofe.
OPENING STATEMENT OF HON. JAMES M. INHOFE, U.S. SENATOR FROM
THE STATE OF OKLAHOMA
Senator Inhofe. Thank you, Mr. Chairman. I would also say
favorable things about Governor Whitman, particularly since she
recanted the very statement that you read at a later date. It
takes a very large person to do something like that.
I want to thank Dr. Kroszner for testifying on this current
state of the knowledge regarding emissions control technology.
As you know, this topic is of great significance to not just
the four of us at this table, but our committee. While I would
have preferred that this data had come to us earlier, I
appreciate the Administration is here today to ensure that this
subcommittee has the most up to date information as it
considers the legislation.
I want to reiterate something the chairman said that I'm
committed to the Clear Skies goal of reducing the SOx and NOx
and mercury emissions by 70 percent, which is the most
aggressive Presidential initiative in the United States history
to reduce power plant emissions. That's worth repeating,
because you don't hear this very often out in the media. This
is the most aggressive Presidential initiative in the history
of reducing power plant emissions.
But I am concerned that the phase one mercury interim cap
is too stringent and creates too much uncertainty. U.S.
utilities contribute only 1 percent of the mercury emitted
globally and new scientific findings have called into question
the health effects associated with mercury emissions. While I
intend to address the question of the current state of science
regarding mercury at a future full committee hearing, the focus
of this hearing is on the control equipment.
The decisions we make should be based on the best available
facts about how well the technologies work because regulation
of mercury is very, very costly. These costs are passed on to
consumers as higher electric prices. And high prices are like a
regressive tax on the poor in our Nation. That's something that
everybody has to have. And it's one that hits the poor harder
than it does the wealthy.
I'm aware that the Administration has expended much effort
to incorporate into its models the most accurate assessments of
what the various technologies accomplish in terms of reducing
SOx and NOx and mercury. While reducing emissions levels can be
extremely expensive, much is understood about the capture of
SOx and NOx in particulate matter. There is little uncertainty
regarding the costs and emissions capture rates in SOx in the
latest technologies such as scrubbers and bag housing.
Mercury stands in sharp contrast. While there are
technologies under development, and we'll hear of some of them
toady, as Senator Carper pointed out, there is no commercially
proven and available technology to remove mercury from coal-
fire emissions. My main interest in this hearing is the
estimated mercury phase one co-benefits level. I feel compelled
to note my longstanding frustration at the ever-evolving
definition of co-benefits as this process has progressed. So I
want to make clear at this hearing how I define it.
Mercury co-benefits are the levels of mercury expected to
be achieved as a result of meeting SOx and NOx phase one
emissions limitations. Dr. Kroszner, when it becomes question
and answer time, I'll be asking for your definition to see if
you're in agreement with that.
Clearly, the state of knowledge regarding mercury capture
is rapidly evolving. It is still in its infancy. Much
uncertainty remains about the levels of capture that are
achieved using proven technologies. Dr. Kroszner, you written
statement reflects both these statements. While Clear Skies has
a hard cap of 26 tons, your models predict that the co-benefits
will result in emission levels in the range of 34 to 46 tons.
This range also demonstrates the level of uncertainty that
exists even now about the levels of control and what the
various technologies will achieve.
My primary interest is to better understand the major
assumptions your models make about various combinations of
equipment. Specifically, how have the models evolved from the
2002 to 2003 for both EPA and EIA and also what equipment
combinations drive the differences between the co-benefit
results projections.
I would like to compliment the Administration for the level
of attention given to continually upgrade its estimates by
working with researchers and industry to improve the
assumptions it uses in the models. This new information is
profound in its implications. I am also encouraged the
Administration is continuing in its efforts to reconcile the
differences between the EPA and the EIA models so that Congress
has the latest information as to the science, as the science
matures.
So Mr. Chairman and Mr. Ranking Member, I'm delighted to
have all three panels. And I do agree with your restriction on
time. Otherwise, it's going to last the whole day.
Senator Voinovich. Thank you, Mr. Chairman.
Senator Thomas.
OPENING STATEMENT OF HON. CRAIG THOMAS, U.S. SENATOR FROM THE
STATE OF WYOMING
Senator Thomas. Thank you, Mr. Chairman. I agree with your
restriction on time also, so I'll be very brief.
I agree with what the chairman has just said, but I
certainly welcome this hearing. We all agree we want clean air
and we want to move in that direction, of course. So we need to
talk about it.
Since the enactment of the Clean Air Act, there have been
significant reductions in NOx and SO<INF>2</INF> and
technologies exist for both of these emissions. My concern is
the lack of commercially demonstrated technology for mercury,
particularly for western coal, and general belief that mercury
can be captured by adding scrubbers in the routine way of doing
it. This may work for eastern bituminous coal, it does not work
in the west.
So I agree very much with what the chairman has said, and I
look forward to it, and I appreciate your being here and hope
we can come up with a reasonable approach to continue to get
clean air. Thank you.
Senator Voinovich. Thank you, Senator Thomas.
Dr. Kroszner, you can proceed with your testimony. We're
very happy that you're here today.
STATEMENT OF RANDALL S. KROSZNER, MEMBER, COUNCIL OF ECONOMIC
ADVISERS
Dr. Kroszner. Thank you very much, Mr. Chairman, ranking
member and members of the committee. I'm delighted to be able
to address you today on this extremely important issue of the
Clear Skies Act of 2003.
I will just give you a few highlights of the testimony to
try to keep in the 5 minute limit, and if I may just submit for
the record the formal written testimony that I have.
Senator Voinovich. Without objection. And Senator Carper,
without objection, we'll include that which you referenced in
are opening statement earlier.
Senator Carper. Thanks, Mr. Chairman.
Dr. Kroszner. Thank you very much.
Strict enforcement of environmental rules can be dated back
as early as 1306, when a man was allegedly executed for burning
coal in London. In the United States, concern for air quality
dates back to the mid-19th century, when many municipalities
began to issue smoke ordinances. Responsibility for regulating
air polluters rested almost exclusively with States and
localities until the 1970's.
During these years, the Federal Government began to take a
more active role in environmental regulation with the passage
of the National Environmental Policy Act, Clean Air Act, and
further amendments later in the 1970's. One common thread over
time has been that the U.S. air quality regulatory policy, and
indeed, environmental regulation in general, has typically
relied on command and control regulation. This type of
regulation mandates technologies or processes, does not take
advantage of the power of markets, and is therefore by its very
nature more expensive and less efficient than is necessary.
In contrast, the President has crafted an initiative that
will clean our air using a proven market based method.
Announced in February of 2002, the Clear Skies Act would be the
most significant and aggressive step America has ever taken to
cut power plant emissions of three harmful pollutants: sulfur
dioxide, nitrous oxide and mercury. The proposal, which builds
upon the highly successful 1990 acid rain trading program, will
cut emissions by approximately 70 percent over the next 16
years.
Clear Skies employs a dynamic approach to regulation that
mandates specific emission-reduction emission caps, while
providing managers with flexibility to reduce emissions in the
most efficient and least costly manner possible. Through a
market-based cap-and-trade program, Federal emission limits, or
caps, are set and emissions permits are distributed to
electricity generators. Managers then have the advantage to
determine the most efficient means of action; whether it is
sale or purchase of unused allowances, or banking of credits
for later use, Clear Skies provides regulatory certainty and
lays out the timeframes necessary for managers to design a
cost-effective strategy tailored to both current budget and
future plans.
With this structure, we uphold the principal feature of the
President's initiative, improving air quality more cost-
effectively, so Americans can continue to rely on clean and
affordable electricity. Clear Skies will achieve faster
reductions than in the current Clean Air Act by creating
incentives for over-compliance and innovation--the means to
reduce pollution by more than or earlier than required--and
then those who do so, can generate and sell extra credits.
The Clear Skies Act will improve health, visibility and a
diverse range of ecosystems by reducing the emissions of NOx,
SOx and mercury. In short, Clear Skies will result in dramatic
progress toward solving our Nation's persistent air quality
problems.
As you are well aware, the crucial element of any
regulatory policy is not only recognition of the benefits
received from emissions reductions, but also the resource costs
associated with the policy. Those costs, it must be emphasized,
are ultimately borne by the citizens, whether by stockholders
or companies making the reductions, or by consumers of
electricity, or both. Therefore, the Administration takes the
economic modeling of Clear Skies quite seriously. In this
respect, over the past year we have gained better understanding
of the costs to abate NOx and SOx and the co-benefits
associated with reduction of mercury.
Understanding the removal costs associated with mercury is
still in a bit of an early stage, exactly as the Senators had
been describing. The goal of Clear Skies is to reduce mercury
emissions by 70 percent by 2018, with an interim cap of
approximately a 50 percent reduction by 2010. Mercury emissions
will be reduced from current levels of approximately 48 tons to
15 tons in 2018, with an interim cap of 26 tons in 2010.
Clear Skies is designed to meet the goal of reducing the
mercury with a trading program that is more cost-effective than
the program currently required by the Clean Air Act. The
interrelationship of the cap levels for NOx, SOx and mercury is
also a very important feature of the Clear Skies program to
provide much more flexibility, greater regulatory certainty and
help in planning cycles with the co-benefit of mercury
reductions from the NOx and SOx emissions controls.
So in looking at the total resource costs, and looking at
the cost of mercury removal, I want to talk more during the
question period about some of the new data that has been
gathered throughout the EPA's information collection request
and various pilot programs. What we've been finding is that
even though there are uncertainties, I just want to highlight a
couple of the empirical estimates of interest. The first phase
of the mercury-reduction cap is designed to take advantage of
the interrelationship of NOx, SOx and mercury emissions and do
this through SCRs, scrubbers, NOx and SOx controls determining
co-benefits.
Our updated analysis suggests that the NOx and SOx limits
in Clear Skies would lead to estimates of annual mercury
emissions in 2010 of controls between 34 and 46 tons. What I
can do is provide you with more details during the question
period. But just to sum up, the President's Clear Skies
legislation calls for a 76 percent reduction in power emissions
during the next decade and a half. The legislation will meet
the required health based standards laid out in the Clear Air
Act. It will achieve those results sooner than required at a
much lower cost to consumers.
We look forward to working with the committee and Congress
to create a market based system that will provide early
reductions and affordable energy prices for consumers. Thank
you, Mr. Chairman and I look forward to answering your
questions.
Senator Voinovich. Thank you, Dr. Kroszner.
I'll start the questioning off. You stated that Clear Skies
will achieve faster reductions than the current Clean Air Act.
Can you explain in greater detail how these provisions will
work and how quickly you believe emissions will be reduced?
Dr. Kroszner. What we've done is we have a market-based
system that gives incentives for early reduction. Unlike the
uncertainty associated with the so-called MACT that will be
coming down the line, we have a very clear structure of how
there will be reductions that need to be occurring by 2010 and
then by 2018. A clear system of SOx that will give incentives
for people to start innovating today and reducing today rather
than spending a lot of time litigating hoping that there can be
changes in the MACT.
So I think the market based structure that we have gives
the incentives for earlier reductions than we otherwise would
get through the current structures.
Senator Voinovich. In other words, because of the certainty
of the provisions of Clear Skies, it will lay out a pattern for
the future which will make it much easier for people to move
forward because they'll know what's expected of them rather
than what we currently have on the books.
Dr. Kroszner. Precisely. There's a great deal of
uncertainty associated with the mercury MACT, and there's
likely to be a lot of litigation associated with that, which of
course engenders a great deal of uncertainty. Something like
Clear Skies, which very clearly sets out with legislative
mandates a very clear time table, provides much more certainty
for firms to do this, as well as the cap-and-trade program that
also gives the incentive for early innovations and early
reductions.
Senator Voinovich. Several of the witnesses we're going to
hear today will argue that we need to put a cap on carbon
dioxide emissions in order to improve the financial health of
investors. However, the political reality we face in Congress
is the regulation of carbon will not become law for at least
some time. That's the lay of the land here.
Would you like to comment on that?
Dr. Kroszner. I think it's extremely important to go ahead
with the Clear Skies legislation. The President is very much
committed to improving the health of American citizens through
exactly this kind of means, and improving visibility at our
national parks and throughout the country. And moving quickly
and moving today on this legislation is something that is very
important. We should not delay for other reasons, we should go
on this. We get much earlier health benefits by moving promptly
on exactly this.
Senator Voinovich. There are many of us that realize that
there is very much concern about carbon.
Dr. Kroszner. Yes.
Senator Voinovich. We've been working very conscientiously
to try and find some kind of a compromise that does not cap
carbon but would encourage technology and also the
sequestration of carbon, which is a major problem that we have,
the lack of it is a major problem today. Has the Administration
given any consideration to some compromise in this area?
Dr. Kroszner. I think the Administration's proposal so far
with the registry system, with the reduction system that we
have in place, the commitment to reduce intensity by 18 percent
over time, goes precisely in that direction of trying to deal
with these issues in a way that is as market based as possible.
But of course, we look forward to working with Congress as we
develop and get more information about the costs and benefits
of carbon and of carbon reduction. The issues are still really
in a very, very early stage. So I think we need to gather more
data.
But obviously as we gather more data, and do more analysis,
we very much look forward to working with you to see what
should be done. But I believe that the proposals and the
program that we have today, with the 18 percent reduction in
intensity over time, is an excellent way to deal with the
problems, at least on the science that we have today.
Senator Voinovich. Thank you.
Senator Carper.
Senator Carper. Thanks, Mr. Chairman, and Dr. Kroszner,
thank you for being with us today and for your testimony.
I found your written testimony informative and are verbal
testimony as well. However, I think it's remarkable in that
your testimony does not ever mention the issue of carbon
dioxide or greenhouse gases or climate change or global
warming. And I'm just wondering, has the Council of Economic
Advisers conducted an analysis of the impact for the Clear
Skies Act on, or really any other multi-pollutant bill, and
what impact those legislation, those pieces of legislation will
have on CO<INF>2</INF> emissions from the power sector? Do you
think this is an issue that we should consider?
Dr. Kroszner. We have not undertaken any specific analysis
of that issue. We've been looking primarily at the three main
pollutants of NOx, SOx and mercury. So we've been looking at
the interaction among those primarily.
That is not to say that carbon isn't a very important
issue. As I'd mentioned, the President has his plan for the 18
percent reduction in intensity of carbon emissions.
Senator Carper. Eighteen percent reduction, could you put
that in context? Is it 18 percent reduction below what it is
right now to what it would otherwise be at some date in the
future?
Dr. Kroszner. It's 18 percent reduction in the intensity.
So that is the amount of emissions relative to GDP. So it's a
ratio.
Senator Carper. Below the intensity this year? Five years
from now, 10 years from now? Is it an 18 percent reduction
below current levels?
Dr. Kroszner. It is an 18 percent reduction over time from
current levels. That is my understanding of the program.
Senator Carper. We'll come back and verify that. In fact,
let me just ask you to verify that for the record.
Dr. Kroszner. Certainly.
Senator Carper. My understanding is it's an 18 percent
reduction, not below current levels, but below what they would
otherwise be at some date in the future. And maybe we can
verify that.
Dr. Kroszner. Certainly we'll do that for you, Senator.
Senator Carper. In your testimony, why don't you address
CO<INF>2</INF>? I think it's just peculiar, it's an issue that
is deemed to be important by a lot of people, and you never
mention it.
Dr. Kroszner. It certainly is an important issue. I don't
mean to not mention it, or by not mentioning it say that it is
not an important issue that we continue to look into and
continue to spend an enormous amount of resources studying,
much more than any other country. But I did not realize that
this testimony was to be focusing in that. I thought it was to
be focusing on the Clear Skies Act itself. That's why I tried
to limit myself to focus on the three main pollutants in Clear
Skies.
Senator Carper. You stated very directly in your testimony
that Clear Skies is designed to meet the Clean Air goal of
reducing mercury with a trading program that I believe you say
is more cost-effective than the program currently required bay
the Clean Air Act. Here's my question. What is the cost that
you're using of the current Act's requirement for comparison
purposes? And second, what is the cost of the Clear Skies
mercury program?
Dr. Kroszner. The cost of the Clear Skies mercury program,
let me talk just a little bit generally about how we get to
those costs. What we're doing is looking at the NOx and SOx
reductions from scrubbers, SCRs, et cetera, using various forms
of technology. And we do get some co-benefits with a reduction
in the level of mercury that gets into the sky, simply by
taking out the NOx and the SOx. And that then gives us
estimates of how much would be taken out just by the mere fact
of controlling NOx and SOx based on 2010 and 2018 goals that we
have in mind.
Then what we do is say, let's try to see what will the
costs be of moving beyond the co-benefits if we need to move
beyond the co-benefits. And currently both the EPA and EIA
estimates are that the costs to meet the interim goal, 2010,
would be on the order of $650 million to $700 million per year.
Both modeling techniques suggest that that's approximately what
the cost would be to achieve our interim goal of 26 tons.
Senator Carper. I got lost there in the weeds. I asked two
questions. Just come back and answer them as directly as you
can. First, what is the cost that you're using of the current
Act's requirements for comparison purposes? Because what you're
asserting in your testimony is that the trading program within
the Clear Skies initiative is more cost-effective than the
current Act. What is the cost you're using for the basis of
your comparison? I think you may have just given me the cost of
the Clear Skies mercury program. But let me just have both of
those again, please.
Dr. Kroszner. Sure. The mercury MACT program, the
implementation of it, is highly uncertain. So we don't have a
specific number for the MACT implementation, though we very,
very strongly believe, and I think it's from past experience
with other attempts to use something like MACT, is that
relative to a SOx system, it's going to be much more costly to
do plant by plant types of controls, use the MACT structure,
which looks not at cost reduction, but looks at just particular
technology use.
So by taking that approach rather than an approach that
allows for SOx, allows for companies to try to choose the most
cost efficient means of reducing things, we know that that will
be more expensive relative to an alternative. But I don't have
a specific number to give you that.
Senator Carper. If I could just ask you to attempt to
respond in writing for the record on the two questions. If you
could do that, that would be much appreciated.
Dr. Kroszner. Sure.
Senator Carper. Thank you. I see my time's expired. Thanks,
Mr. Chairman.
Senator Voinovich. Chairman?
Senator Inhofe. Thank you, Mr. Chairman. Let me read a
couple excerpts from a letter, since Senator Carper has made
some requests of the Administration insofar as CO<INF>2</INF>
is concerned. This is a letter which I will want to insert in
the record at this time, but will read just a couple sentences.
This is from Christine Todd Whitman to both Senator Voinovich
and myself.
``I noted with particular interest the comments by several
witnesses that we not hold hostage Clear Skies certain and
aggressive reductions of sulfur dioxide, nitrogen oxide and
mercury emissions to a debate on whether carbon dioxide should
be regulated. The Administration shares these views. As the
President stated in his March 13th, 2001 letter to several of
your colleagues, `I do not believe that the Government should
impose on power plants mandatory emissions reductions for
carbon dioxide, which is not a pollutant under the Clear Air
Act.' ''
[The referenced letter follows:]
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
Senator Inhofe. A lot of us have looked at this over a
period of time and tried to sort out the emotions from the
science in terms of greenhouse gases, CO<INF>2</INF>, global
warming, and go back and looking at it historically when we can
recall during that 500 year period ending in 1300 which was
considered to be the medieval warming period, going into the
little ice age, then going back into a warming period. The
interesting thing being that that second warming period ended
in 1940. So we went into a cooling phase. And what happened in
1940? It was the expanded use of automobiles, CO<INF>2</INF>
emissions and all that. Totally contradicts the assumptions
that many people have, their belief certainty of this whole
global warming concept.
So my request is, and I'm asking this on the record in this
meeting, that if you do go back and do, as Senator Carper is
asking you to do, evaluate and look at CO<INF>2</INF>, that you
take into consideration the fairly new Harvard study of the
1,000 climate change period. It involved 240 scholars and came
up and pretty much opened this up and gave new concepts to this
whole discussion.
All I want, and I said this on the first day I became
chairman of this committee, is that we're going to look at
sound science. We're going to adhere to that. So I'm going to
ask you to take that into consideration in anything that you're
doing.
Now, I mentioned to you in my opening statement that my
definition on the, by the term co-benefits in the context of
the mercury provisions, I'd like to have you give us your
definition or the Administration's definition.
Dr. Kroszner. I think we're very much consistent with the
definition that you had given. The co-benefits are the benefits
of mercury reduction that come along with trying to reduce the
emissions of NOx and SOx. So those are the ones that by trying
to meet particular caps on NOx and SOx, you also get in terms
of mercury reduction.
Senator Inhofe. That's excellent. I agree with that.
What are the main drivers that are responsible for the co-
benefits level of 34 tons for EPA and 46 for EIA?
Dr. Kroszner. They have slightly different modeling
approaches. Let me highlight a few of the differences. We've
been spending the last 6 months really trying to dig deep into
these models and I really want to very much commend EPA and EIA
for working so closely together. We've really been running them
ragged and I really want to praise them for the great progress
that they have made in helping us.
Senator Inhofe. And as you do this, if you'd use as layman
terms as possible.
Dr. Kroszner. I will try to, since I'm very much a layman
also in many of these areas. One has to do with the amount of
mercury removal, getting at this notion of how much mercury
comes out when you apply these different types of technologies.
And there seems to be a fair amount of agreement on the two
sides for bituminous coal. There seems to be enough data and
similarity of modeling techniques that we'll get roughly 90
percent reduction from the technologies that we have some
information on.
For other types of coal, we don't have quite as much data
and there's a little bit more difference between the two sides
on that. So that's one of the areas I wanted to highlight, is
differences in the two approaches. They make somewhat different
assumptions about natural gas prices. They make somewhat
different assumptions about growth in the demand for
electricity over the next 20 years. And also a little bit of
differences in the way that they think about the coal models.
That is the choice of different types of coal to be used. And I
think there are some differences in the way they think about
how flexible contracts are and such.
So I'd highlight those as probably the three or four major
areas of differences between the two that have led to what I
would think of as sort of a sensitivity analysis that now gives
us a range of 34 to 46.
Senator Inhofe. And it's my understanding that those
entities are meeting and talking about these differences and
the outcomes, the results that they're coming up with?
Dr. Kroszner. Yes. We've had a lot of convergence, and have
a much, much better understanding for the differences in the
two models; and EPA and EIA continue to work together. And
again, I have to praise them for the gauntlet we've kind of put
them through. I don't think they've ever been asked to work so
closely together before. And I think both sides have benefited
quite a bit. This is really how science improves.
Senator Inhofe. Thank you very much, Dr. Kroszner.
Senator Voinovich. Senator Thomas?
Senator Thomas. Thank you. I guess I need to pursue that a
little further. What is the latest estimate that you have then
of the co-benefits for mercury?
Dr. Kroszner. Roughly, from the EPA models, we have on the
order, I'm sorry, for co-benefits----
Senator Thomas. Reduction in phase one.
Dr. Kroszner. The estimates coming out of the models are
that by meeting the SOx and NOx caps by 2010, we would have
between 46 and 34 tons of mercury still being put into the air.
That's where we are in terms of the two modeling approaches.
Senator Thomas. Your original one was what level?
Dr. Kroszner. The original focus, or the original one using
less data that we have was one based on EPA in the upper 20's.
Senator Thomas. Twenty-six, I believe, wasn't it?
Dr. Kroszner. Yes, the cap is set there. I certainly want
to emphasize, and this is not a model to minimize what EPA and
EIA have done, there's always some uncertainty. These are
really estimates that come out of the models. That's true
whether it's trying to estimate co-benefits in mercury or
trying to estimate what economic growth will be in 2010, which
is another exercise that I do at the Council of Economic
Advisers.
So that's why I say, these numbers are estimates, so upper
20's is roughly where we were, and now we're in the range of
sort of upper 30's, I would say, upper 30's to low 40's, as the
reasonable range for where we are.
Senator Thomas. So that in terms of what the expectation
will be, then, in the regulation, will be where?
Dr. Kroszner. The President's proposal has a 26 ton cap in
2010. What we wanted to do, the request from the committee was
to try to provide updated information, and we've gathered new
information from last year, and we're eager to share that with
you. So we wanted to present that to you. But the President's
proposal is a cap of 26 tons in 2010.
Senator Thomas. I guess I don't understand that. If your
information and data shows one thing, and your President's
program shows another, how do you reconcile those two things?
Dr. Kroszner. Obviously we have put forward a program based
on the best science that we had available at the time, as the
proposal was put forward in February of 2002. And we wanted to
provide you with updates on where the science is.
Senator Thomas. So you'll be supporting an update based on
the newest data?
Dr. Kroszner. We support the President's proposal. We think
it's a very good proposal, of course.
Senator Thomas. I don't understand that. Tell me what
you're talking about.
Dr. Kroszner. But we wanted to provide you with the new
information. Obviously----
Senator Thomas. You want us to change it, then, is that it?
Dr. Kroszner. Occasionally Congress does change things that
the President puts forward. I know that that does happen.
Senator Thomas. That does happen, yes.
Dr. Kroszner. As shocking as it has been to me in my 2
years in Washington. So of course, we understand that that
could be a possibility. But the President's proposal certainly
is with the 26 ton cap in 2010, but obviously we wanted to
provide you with the updated information.
Senator Thomas. Thank you.
Senator Voinovich. Dr. Kroszner, when the mercury number
came to our attention, that the Administration suggested in the
Clear Skies proposal, many of us were skeptical of that number.
What you're saying here today is that after working between EPA
and with the Department of Energy that that number of 26 does
not reflect the most recent information that you've been able
to derive in terms of co-benefits, and that is that rather than
the 26 ton number that the number should be somewhere between
34 and 46?
Dr. Kroszner. If you are choosing the number based on the
estimates of the co-benefits. First, of course, as I had said
in response to Senator Thomas, there is uncertainty around
these estimates. So I don't want to say that these are
necessarily the true numbers that we know with certainty. We
don't know them with certainty.
But also, there could be other factors.
Senator Voinovich. Is 34 better than 26, based on your
information or not?
Dr. Kroszner. We have more data, so we have more data than
we had from before, and I think we've improved our modeling
techniques over time. But there may well be more considerations
that come in to making these calls. Because the science brings
us so far, but there's certainly some uncertainty that is still
left over. There still may be room for policy judgments that
come in.
So I think that it is important to take co-benefits in as
one very important factor. But it is, I think, one very
important factor in that it is a policy judgment as to whether
one wishes to take more factors into account or not. And that's
why we wanted to make sure to provide you with the information
on co-benefits. But of course, other factors can come in to
make the decision on where it's appropriate to put a particular
cap.
Senator Voinovich. Have you done any investigation into in
the event that you had the 26 number in this, whether that
would cause utilities to fuel switch to natural gas?
Dr. Kroszner. We've looked into that. Fortunately, the
flexibility of the Clear Skies policy allows people not to have
to fuel switch. Projections from both models suggests that
there would be relatively little fuel switching between coal
and natural gas over time. It's precisely because of the
flexibility that Clear Skies allows. So this is not something
that should be seen as putting to death one type of fuel. It's
something that I think is very valuable in maintaining fuel
diversity, which is an important part of our fuel security
program.
Senator Voinovich. You haven't really looked at that
number, then?
Dr. Kroszner. We have modeled, the models predict whether
there will be a lot or a little fuel switching. And there will
be relatively little fuel switching under both models.
Senator Voinovich. You're saying that the 26 number would
not cause fuel switching?
Dr. Kroszner. There would be a small amount of fuel
switching but not very much. What people will do is, given the
model's assumption about electricity demand, about the prices
of natural gas, is that people may choose to pay more for the
permits, the permit prices would go up. But that might be a
more effective means of trying to generate electricity than
switching to gas. So, that flexibility allows----
Senator Voinovich. So what you're saying is that part of
the decisionmaking has to do with the price of natural gas?
Dr. Kroszner. The price of natural gas and the price of the
permits. So the models both predict what those will be over
time. Look at the choices that the managers would make between
choosing to continue to use coal and choosing to switch to
natural gas. The model suggests that there would be relatively
little switch between coal and natural gas.
Senator Voinovich. Senator Carper?
Senator Carper. Thanks, Mr. Chairman.
Several of us on this panel, there aren't a whole lot of us
here, but several of us here on this panel are very much
interested in working on an issue that we're not discussing
today, but it's an issue that will be before the Senate, and I
hope fairly soon, and the issue is asbestos. There are, as you
know, in this country a lot of people who have been exposed to
asbestos over the years. Many of them have become sick and have
died. They're not getting the kind of financial help that they
need. In the meanwhile, a fair amount of money is being
siphoned off to help people who are not sick and will never be
sick from asbestos exposure.
And we're working, Senator Voinovich and I and others are
working with Senator Hatch. I think Senator Thomas has an
interest in this issue as well. We're trying to come up with an
approach to create a trust fund where companies, manufacturing
companies and others, insurance companies, would contribute
money into a trust fund from which would be paid claims to
folks who meet certain medical criteria from their exposure to
asbestos over the years.
One of the reasons why companies are interested and
insurance companies are interested in contributing to a fund,
creating a trust fund, and contributing a lot of money to it,
and Senator Hatch was talking yesterday about, I think about a
$108 billion trust fund that would be created for this purpose.
One of the reasons why companies are interested in doing this
is because it provides some certainty for them in an uncertain
world. One of the lessons that I learned, and I'm sure Governor
Voinovich learned this long before I did, being one of the
Governors of our States, in promoting economic development and
job creation, companies like certainty. And to the extent that
we can provide that, we ought to. We try to provide a nurturing
environment for job creation and business development in my
State, as Governor Voinovich did in Ohio.
Which leads me to this question, there are a number of
utilities, one of whom will testify later today, who will talk
about the value of certainty in their industry, the idea of
knowing what they're up against in terms of caps on sulfur
dioxide, nitrogen dioxide, mercury and SO<INF>2</INF>. In your
verbal testimony, I don't recall hearing anything about the
economic value of certainty. It may be there in your written
materials and I missed it.
But companies have raised with me and I suspect others on
the panel the need for certainty. And I'd just like to hear
from you how you would include that in an economic model. How
would that be valued?
Dr. Kroszner. Certainly it's something that economists
often talk about as a risk premium when there is greater
uncertainty, greater risk associated with taking one path
versus taking another. And so of course there has to be some
compensation for the greater risk or greater uncertainty.
Typically for, let's say, a riskier firm, if they were to issue
bonds, they would have higher interest rates associated with
them. If there's greater uncertainty for the firm itself, there
is more difficulty in their planning processes, it's more
difficult for them to think about what they need to do going
forward.
So it makes their planning cycle more difficult, it can
make their planning cycles more difficult for firms to figure
out where they need to be investing in different areas. So it
can raise the cost of capital in general if there is greater
uncertainty, and it can also just make it more difficult for
firms to move forward to invest, because they're just not sure
where they should be going.
Senator Carper. Thank you for that response. How would you
include that in an economic model, in the work that you do?
Dr. Kroszner. What it would be is in terms of an economic
model going forward, let's say, with the challenges that the
economy may be facing now, we may be seeing less investment
than we otherwise would be, because of uncertainties about the
economic future. So one way in which we take it into account is
that it would reduce overall investment in the economy if there
are broad uncertainties. If there's much more certainty about
the direction of the economy, let's say it's a good direction
for the economy, then of course, managers will be able to make
plans more easily, they're more likely to go forward and
increase capital spending plans. So that would be one way in
which I would take uncertainty into account in an economic
model.
Senator Carper. If you want to give it some further thought
later and want to respond further in writing, that would be
welcome. Thank you.
I think I have time for one more. What price signal does
the President's voluntary emissions intensity approach, and
that's where we're talking about the 18 percent, and that's 18
percent below a baseline. There's an increase in the emissions.
And when you're talking about 18 percent reduction, it is an 18
percent reduction below the baseline, or projected increase.
But what price signal does the President's voluntary emissions
intensity approach send to the markets and to industry about
reducing greenhouse gases?
Dr. Kroszner. What it does is it, I believe, provides some,
the combination of Clear Skies and our carbon plan does provide
some certainty for going forward and provides an incentive for
the companies to reduce their emissions. We don't have a
specific price signal that is out there now, but implicitly
there will be one that will be developing, the choices people
make to try to reduce to meet this 18 percent intensity
reduction. But there's not a specific number that is out there
now. But there is an incentive that is there.
Senator Carper. Thanks very much.
Senator Voinovich. Mr. Chairman.
Senator Inhofe. I have only one question. You say that
there will be no fuel switching. Is this true for both the EPA
and the EIA models, or just the EPA?
Dr. Kroszner. I believe it's for both models that they
would have relatively little fuel switching associated with the
President's proposal.
Senator Inhofe. Thank you. No further questions.
Senator Voinovich. Senator Cornyn, do you have any
questions?
Senator Cornyn. Not of this witness. Thank you.
Senator Voinovich. Thank you.
Dr. Kroszner, we'll be submitting some other questions to
you in writing and we'd like you to get back. Senator Carper is
concerned about some of the responses that you have given. All
I can say to you is, and to the other people who are coming
here, when I talk with utility executives, and I have been
authorized by one of them to say publicly, American Electric
Power, which is a very large producer of electricity, that they
will never build another coal-fired facility, and they will
switch to natural gas unless this situation is clarified for
them. They are very supportive of the President's Clear Skies
proposal.
Thank you very much. We'll have our next panel.
Dr. Kroszner. Thank you very much.
Senator Voinovich. While the panel is coming forward, I'm
going to introduce them and give you a little background on
them. Our first witness is Dr. Larry Monroe. He's the Program
Manager of Pollution Control Research and he's speaking on
behalf of the Southern Company and the Edison Electric
Institute, EEI. Our next witness will be Dr. Steven Benson,
Energy & Environment Research Center, the University of North
Dakota. And our third witness is Dr. Richard Bucher, who is
here from W.L. Gore and Associates, and was referenced by
Senator Carper in his opening statement.
We want to thank you all for coming today and again like to
remind you, I hope that somebody tipped you off that it's 5
minutes, and hopefully if there are some things that you didn't
get out in your statement you can bring them forward in the
question and answer period.
Dr. Monroe, we'll start with you.
STATEMENT OF LARRY S. MONROE, PROGRAM MANAGER, POLLUTION
CONTROL RESEARCH, SOUTHERN COMPANY
Mr. Monroe. Thank you, Mr. Chairman, Senator Carper,
Senator Cornyn. My name is Larry Monroe, and I work for the
Southern Company. The Southern Company is a regional energy
company serving some 4 million customers in the southeastern
United States. I'm a chemical engineer and I work on finding
effective emissions control technologies. I'm also speaking
today on behalf of the Edison Electric Institute.
The state of power plant mercury control technologies is
still in its infancies. There are no commercial technologies
available. By that, I mean there are no vendors that are
offering a process to the industry that includes a guarantee of
performance. There are two near-commercial technologies
available, the first is coke control by flue gas
desulfurization systems, also called scrubbers, installed to
control sulfur dioxide, called SO<INF>2</INF>, and perhaps
aided by nitrogen oxide, NOx controls. And the second of these
technologies is activated carbon injection.
Mercury can exist in three forms at the exit of a power
plant: the elemental vapor, the ionic form or attached to fly
ash as particulate mercury. The form of the mercury in the flue
gas determines how easily it can be removed.
Now to the first of the near-commercial processes, coke
control by SO<INF>2</INF> removal, and possibly NOx removal
processes. The most common sulfur dioxide control process is
the wet scrubber, where powdered limestone and water are mixed
with flue gas to remove SO<INF>2</INF>. The ionic form of
mercury is soluble and is also removed with relatively high
efficiency in these scrubbers. Therefore, the amount of mercury
control in the scrubber depends on how much ionic mercury is
present, which is highly dependent on how much chlorine is in
the coal.
The coals in the eastern U.S., mostly bituminous coals,
contain significant amounts of chlorine and therefore produce
maybe 60 percent ionic mercury. And the scrubbers in the
limited testing done to date can remove as much as 90 percent
of that, for a total mercury removal of 55 percent.
However, the coals found in the western U.S., mostly
subbituminous and lignite coals, are naturally low in chlorine
and produce only about 25 percent ionic mercury, which means
that a scrubber would only remove about 22 percent of that
mercury.
Claims have been made based on German research and now
tested in the U.S. that selective catalytic reduction systems
installed to reduce NOx converts some of the remaining
elemental mercury into the ionic form, the form that can be
captured in scrubbers. Testing conducted thus far appears to
show that these NOx reduction systems do appear to help with
the mercury chemistry but only for eastern bituminous coals and
not at all for subbituminous and lignite coals. Studies at a
very limited number of power plants suggest that this
combination of NOx and SO<INF>2</INF> controls for plants
burning eastern bituminous coals may increase the 55 percent
mercury scrubber capture to around 80 to 90 percent, when a
selective catalytic reduction system for NOx control is added.
However, the low chlorine content of the western
subbituminous and lignite coals apparently prevents the
selective catalytic reduction system from oxidizing the
mercury, so the combination of NOx and SO<INF>2</INF> controls
remains at the 22 percent mercury, due to the scrubber alone.
Let me emphasize that these estimates in mercury reductions are
based on tests at only 10 plants, less than 1 percent of the
1,140 plants in the country. Therefore, we have no way of
knowing how many plants will be able achieve these States
performance numbers.
The second near-commercial technology for mercury control
in power plants is activated carbon injection. The very first
full scale test of any mercury control process in the Nation
was a test of activated carbon injection performed at a
Southern Company plant, Alabama Power's Plant Gaston. I would
be happy to give more details about activated carbon injection
in the question and answers.
Finally, recent modeling by EPRI suggests that U.S. utility
emissions of mercury are only a small contribution to
deposition of mercury in the continental United States.
Significant reductions of utility emissions will only reduce
deposition in the U.S. by about 1.5 percent and will only
decrease exposure of the most sensitive population, that is
women of child bearing age, by one half of 1 percent in the
year 2020 as compared to 1999.
In summary, there are no commercial technologies that I can
buy to control mercury emissions from power plants. The two
most promising, coke control with scrubbers, and maybe
selective catalytic reduction, and activated carbon injection,
are under investigation but still need further testing under
various coal types, geographic locations and operating
conditions. Both seem to work better for eastern bituminous
coals, leaving us with no good technology choices for western
subbituminous and lignite coals.
Southern Company and EEI understand that some mercury
reductions will occur as SO<INF>2</INF> and NOx control systems
are installed. But we can only guess at the exact amount. More
testing and research is needed. Any regulatory program for
mercury reduction must consider the state of the technology,
the costs and the energy impacts of meeting the requirements.
Failure to follow the right path will lead to significantly
increased costs, further switching from coal to natural gas for
power generation, and possible disruption of the Nation's
energy supply.
I would be glad to answer any questions you might have.
Senator Voinovich. Thank you, Dr. Monroe.
Dr. Benson?
STATEMENT OF STEVEN A. BENSON, SENIOR RESEARCH MANAGER, ENERGY
AND ENVIRONMENTAL CENTER, UNIVERSITY OF NORTH DAKOTA
Dr. Benson. Thank you, Mr. Chairman, members of the
subcommittee, for the opportunity to testify and share
information on mercury control technologies and challenges for
western lignite and subbituminous coals. My name is Steve
Benson and I'm a Senior Research Manager at the Energy and
Environmental Research Center at the University of North
Dakota, where we have conducted research on mercury measurement
and mercury control technologies for approximately the last 20
years.
The first thing I'd like to do is cover two main points.
The first is that the west produces over 50 percent of the coal
in our country. And aggressive regulation could put western
utilities and their customers at a serious economic
disadvantage. The second point is that the configuration of
western plants suggests that there is not a one fit for all
solution to mercury control technologies in the west.
As Dr. Monroe mentioned, the form of mercury emitted from
power plants is dependent upon the composition of coal. Western
coals contain low amounts of chlorine and produce mostly
elemental mercury in the flue gas. Western coals also contain
high levels of calcium and sodium oxide that tie up the
available mercury, further increasing the elemental form of
mercury.
As compared to eastern bituminous coals that have higher
levels of chlorine, the levels of the oxidized mercury in the
flue gas dominates the form of mercury. The problem with
elemental mercury is that it is not very reactive, and cannot
be captured with most existing flue gas pollution control
equipment. This represents a significant emission reduction
challenge for western coals since a cost-effective commercial
system for effective capture of elementary mercury is not yet
available.
The most common western plant control configurations
include electrostatic precipitators and fabric filters for
particulate control and wet and dry scrubbers for sulfur
control. Selective catalytic reduction for NOx control are not
very common.
Currently research is underway on technologies for reducing
mercury emissions from low-rank coal or western coal-fired
power plants. These include activated carbon injection,
upstream of existing electrostatic precipitators and fabric
filters, oxidation of elemental mercury by chemical addition or
catalyst for capture by wet scrubbers and dry scrubbers, and
also some emerging novel approaches, such as mercury absorption
by noble metals and other means.
The results to date have been varied. Existing research
suggests that mercury removal by particulate and sulfur control
is two to three times lower for western low ranked coals than
for eastern bituminous coals. Fabric filters were the only
particulate control device that appears to remove appreciable
amounts of elemental mercury. But this has only been
accomplished where the chlorine levels are sufficiently high,
which is not typical of low-rank coals.
The technical challenges that need to be addressed include
decreasing the quantity of carbon necessary to control mercury
emissions, decrease in the impact of chemical additives on
boiler corrosion, understanding ash blinding of catalytic
oxidation systems, and the understanding of the impacts of coal
variability. Western coal variability and composition,
especially for lignites, has humbled many researchers and
technology developers, including myself, in the past.
Most of the current research and development efforts have
been conducted on a pilot scale. Long term field tests are
needed to confirm the technical and cost-effectiveness of the
most promising technologies and approaches. In addition, for
any technology to be effective, we need continuous, reliable
mercury monitors to measure both oxidized and total mercury
species in the flue gases.
An additional issue is that fly ash produced by many
western coal-fired power plants is a valuable by-product
producing a revenue stream. The use of activated carbon reduces
the usefulness of this product and may require returning the
fly ash and carbon materials back to landfills. Thus, in
addition to the cost of activated carbon disposal costs would
be incurred.
As I previously noted, cost-effective commercial mercury
control technologies are not available for western lignite and
subbituminous coals where the mercury is in the elemental form.
Although an aggressive research and development program is
being pursued, it is doubtful a cost and technically effective
control technology will be available by 2007, an EPA regulatory
target.
In summary, aggressive control targets could seriously
disadvantage western utilities and their customers who rely on
affordable power. Currently there is no commercially available
technologies that can be applied to control mercury emissions
from western coal-fired power plants. Significant additional
research is required to prepare the western utility sector for
implementation of mercury control standards.
Thank you. I would be glad to answer any questions.
Senator Voinovich. Thank you.
Dr. Bucher.
STATEMENT OF RICHARD BUCHER, W.L. GORE AND ASSOCIATES, INC.
Mr. Bucher. Good morning, Chairman Voinovich, Ranking
Member Carper and members of the subcommittee. My name is
Richard Bucher and I'm here to speak on behalf of W.L. Gore and
Associates about some exciting technical advances that may
offer a solution to the vitally important challenge of reducing
mercury emissions.
Gore is a leading company in the field of advanced
materials that provide creative solutions to longstanding
problems. We believe that a new mercury capture system we have
developed and that has been recently tested at the EPA may well
offer dramatic improvements in the effectiveness, efficiency
and cost of mercury capture from flue gas. We are excited by
this development as an improvement of this kind in mercury
control could greatly contribute both to the long term
sustainability of power generation from coal and to the health
of all Americans.
My employer, W.L. Gore and Associates, best known as the
maker of Gore-Tex fabric, has built a reputation since the
1970's as a leading supplier of high performance filtration
devices to our Nation's industrial applications. Beginning in
the 1990's, Gore scientists and engineers have discovered and
developed a series of radical improvements to our filters
through embedding additional materials and properties into the
structure of the filters that makes them work.
These advances have led to new applications for capturing
over 99.99 percent of fine particulate to catalytically
destroying over 99 percent of carcinogenic dioxins and most
recently, for capturing over 90 percent of mercury in flue gas
streams. The result is a cleaner, safer, healthier environment
and more sustainable industry.
Our invention in the area of mercury capture has moved well
beyond the lab bench and shows dramatic promise for the future.
The key to our technology lies in an increased capacity to
capture and hold mercury, which allows the mercury collection
function as illustrated in this figure to be moved from a
consumable, as with activated carbon on the left, to a system
component. That's with the Gore technology shown on the right.
The Gore system, which employs the same filter bags as the
activated carbon system as shown here, employs the same filter
bags for particulate control as a filter insert on the inside
of the filter which contains the mercury control functionality.
This system means that end users don't need any additional
system infrastructure such as activated carbon silos or
injection equipment or space. The fly ash is free of
contamination, allowing plants to continue to sell as opposed
to landfill this valuable by-product of the coal-fired
industry.
And finally, the system is completely passive in nature.
Once installed, it is always operating, continuously protecting
the air we breath. It does not require additional operators,
maintenance or monitoring.
Initial bench scale studies of our technology conducted at
the EPA research facility in North Carolina demonstrate an
unprecedented level of mercury capture, efficiency and capacity
as illustrated in this figure. On the Y axis we have mercury
capacity of absorbent, on the X axis we have various
technologies. The red bars represent the absorbent capacities
of activated carbons as reported in the literature, and the
blue bars represent the advances made with the Gore technology.
Some of these cases are up to two orders of magnitude or 100
times more efficient at capturing mercury.
Following this success, our most significant testing to
date was conducted at the EPA on their pilot scale coal
combustion unit. The 7 week trial with 24 hour operation was
designed to test the long term viability of the technology
under a variety of conditions. As shown here in this figure,
mercury concentration of the flue gas is on the Y axis, various
conditions on the X axis. The red bar is showing the amount of
mercury coming into our filters. The blue bar is showing the
amount of mercury leaving our filters. And again for a variety
of conditions, both with western subbituminous coals and
western lignite coals.
These results, assuming further successful field
verification, will allow coal burning facilities to easily
comply with the most stringent regulations set forth in the
Clear Skies Act of 2003 and the Clean Air Planning Act of 2003.
Our mercury technology is being designed to provide the
benefits stated above, while potentially costing considerably
less than carbon injection.
For example, activated carbon injection for a 110 megawatt
facility, projected the EPA to cost $700,000 per year. When the
lost revenue of unsalable fly ash is included, those numbers
inflate to a range from $1.1 million to $1.5 million per year.
Current estimates our technology could be 38 to 83 percent
lower than those estimates, making our approach much easier to
implement and more cost-effective.
Although we have not begun marketing this technology, our
interactions with prospective customers have been nothing short
of extremely encouraging. Owners and operators have expressed
enthusiastic support of the concept, citing the ease of
implementation, minimal impact on system performance, and most
of all, the preservation of fly ash value, which is so critical
to their bottom line.
I appreciate the opportunity to testify before you today
regarding the important issue of mercury emissions control.
W.L. Gore and Associates remains committed to developing
innovative, economically feasible technology to address our
Nation's air quality challenges. We look forward to continuing
to work with the committee, the EPA and the coal-fired power
industry to make this technology a commercial reality. Thank
you again for allowing me to testify, and I'd be pleased to
answer any questions you may have.
Senator Voinovich. I thank all of you for your testimony
this morning.
The big question that we're laboring with is the issue of
the tonnage that we have in the mercury requirement and the
Clear Skies legislation. And as I mentioned earlier, there were
many of us that were skeptical about those numbers, and feel
that the more recent numbers coming from the EPA and from the
Department of Energy are more reflective of reality. That's No.
1.
No. 2, there's obviously a difference of the three of you
in terms of the state of technology. Mr. Bucher, you have
testified that you've got some new technology here and that
it's a lot more reasonable than the activated carbon. What is
the difference in terms of the capital investment in regard to
this, to the other technologies that are available? In other
words, to install, we talked about the cost of operation, but
what about the initial capital improvement? I'd be interested
in that. And in addition to that, also the issue of how much
testing has gone into this to the extent that the two other
gentleman at the table here are a little skeptical about
whether or not there is technology out there to deal with the
particular coal that they've mentioned here at the table.
Mr. Bucher. Certainly. The two approaches that I've
outlined both include, most facilities today do not have a
baghouse. The EPA has assumed that most facilities would adopt
a baghouse, whether they're using activated carbon injection,
that they pose as being the most cost-effective solution. Their
numbers, which I based those annual yearly expenses, include
capital expenditures, amortized over a period of years. So it's
the total ownership costs of both technologies, to answer your
first question.
To answer your second question, all the testing that we've
done to date up until about 1 month ago has been confidential
in nature. We have not shared it widely with the industry,
which would explain why most people you would ask about mercury
control from coal would not be familiar with our technology. We
have done a 7-week long test at the EPA, like I mentioned,
which is a short test but in the field of mercury control a
relatively long test.
And it, granted, is on a small, pilot scale facility
roughly the size of this room. We realize that more extensive
testing is going to be required in the field, real facilities.
And we have some plans in place to have that testing start
beginning in the late summer to fall time period.
Senator Voinovich. I think the real question is that if you
were a utility and got a new technology, the real issue would
be how good is the testing and for how long and how much does
it cost and what do your bankers think of it.
[Laughter.]
Senator Voinovich. Dr. Benson or Dr. Monroe, would you like
to comment?
Dr. Benson. I think the key thing that we look at when we
consider a technology that's out there and commercially
available is that it has been demonstrated in the field for
sufficient amounts of time. I guess that is the key. And pilot
scale systems have their limitations. They don't always
represent the variability of the fuels that you may see and
they also may not represent the flue gas compositions that
you're concerned with.
Senator Voinovich. Dr. Monroe?
Mr. Monroe. Specifically on this technology, I would just
mention that only about 14 percent of the Nation's power plants
have this baghouse technology installed at present. So that
would require additional capital investments.
From my point of view, from a utility, I'd rather capture
the mercury in a co-benefits, in a scrubber sort of system,
whether an SCR is available or not. If I install a scrubber on
a 500 megawatt plant, sort of a medium size plant, that's $75
million to $100 million investment for that. If I have to add a
selective catalytic reduction system for NOx, that's an
additional $50 million to $60 million. And to add the baghouse
on top of that would be yet another increment of capital of $20
million to $30 million.
So I'd rather avoid that capital expense if I can perfect
another technology. Once I have a baghouse, then to me it's a
commodity question, does this technology work better, cheaper,
faster that activated carbon.
More generally, I'd just like to point out----
Senator Voinovich. Let me see if I understand this. What
you're basically saying is that you would get the scrubber and
you'd get the SCR and try to get the best that you could from
co-benefits and probably not invest in a baghouse, does that
have to do with the activated carbon thing, the baghouse?
Mr. Monroe. Yes.
Senator Voinovich. OK. And that's what you try to do. And
if that wasn't good enough, then you'd have to probably go to
the activated carbon and the baghouse, and then at that stage
of the game, you'd probably want to be looking at what Mr.
Bucher is talking about?
Mr. Monroe. That's correct. Particularly in the current
regulatory business as usual, in a MACT case, I may have to
control mercury on every power plant. So I may install more
baghouses under a MACT scenario than I would under Clear Skies.
I want to return to the testing, just to state that the
electric utility industry is somewhat unique. We have to make
the power as soon as someone needs it. We don't have any way to
store it, aside from a few sort of off-peak storage systems
there. So we require our equipment to run 100 percent of the
time. Most industries, if you're talking about a refinery or
chemical plant, typically design their equipment for 90 percent
availability, so that it runs 90 percent of the time. It's not
as crucial if they have to shut down their process to fix
something as it is in the electric utility business,
particularly in Atlanta, Georgia, in the middle of an August
afternoon.
So we require much more testing. We require more robust
designs and long term testing before we can accept that
equipment, just due to that unique nature of our business.
Senator Voinovich. Senator Carper?
Senator Carper. Gentlemen, thank you all very, very much
for illuminating testimony and I think in some respects very
encouraging testimony.
Before I ask some questions of our witnesses on this panel,
Mr. Chairman, I'd like to submit for the record a report from
the Northeastern States for Coordinated Air Use Management.
It's entitled Environmental Regulations and Technology:
Controlling Mercury Emissions from Coal-Fired Boilers. It was
published in September of 2000. The report examines the
feasibility and the appropriateness of mercury control issues.
It concludes by stating that past experience suggests that
further delay in the regulation of mercury emissions from power
plants cannot be justified on the basis of concern about
technology availability. On the country, delay is likely to
stall efforts to advance promising control technologies. Mr.
Chairman, I would ask that a copy of this report be included in
the record, please.
Senator Voinovich. Without objection.
Senator Carper. Dr. Bucher, let me ask sort of a follow-up
question here from your testimony. What will happen to the
promising technology that you've described and that we've seen
demonstrated visually here, what will happen to this kind of
promising technology if we simply pick a mercury cap that can
be achieved due to co-benefits of controlling sulfur dioxide
and nitrogen oxide?
Mr. Bucher. Senator, I go frequently in front of our
leadership at Gore in order to state the case for the business
potential. And obviously they have many options on where to
invest their funds for research and development. If we were not
able to paint a clear case of potential market that it's going
to be available and that we'd be able to sell our product into,
it would be very difficult for them, justify it for me to ask
for increased funding and additional research and development.
Senator Carper. Dr. Monroe commented a bit on the
feasibility and cost-effectiveness of implementing the kind of
controls you were talking about. He mentioned the price of
baghouses and all. Would you just think of it and just sort of
respond to any thoughts that come to mind in response to what
he's talked about. In the end, they've got to be able to
produce electricity in ways that are cost-effective. We
understand that. Would you just care to respond to anything he
said?
Mr. Bucher. Certainly. And clearly I see Dr. Monroe's
point, that if you have a wet SGD scrubber system you can add
an SCR for NOx and you can get those benefits that you need for
mercury. That may be an attractive way to go. However, the
EPA's reports are indicating that that is not always going to
be the preferred technology. You're not always going to be able
to achieve those mercury caps with those technologies. Their
analysis has shoed that for most of these western coals that
we're talking about, the subbituminous and the lignite, those
systems, the most economically attractive solution is a
baghouse with activated carbon injection. That's why we use
that as the basis for our report to show how we could save
those customers money over that solution.
Senator Carper. When I visited with you and Chris Koons and
others of your associates at W.L. Gore back in, I think it was
January, you described another project. I think you referred to
it as an advanced hybrid, as I recall. I believe it required,
it removed almost 100 percent of, I think it was small
particles, maybe 99.9 percent from coal exhaust. How is that
different from the mercury technology that you've described
here today, and what is the status of that advanced hybrid
technology in the marketplace?
Mr. Bucher. You're speaking of the advanced hybrid
technology actually that the EERC, which Dr. Benson is from,
was the inventors. Gore is the party that is commercializing
the technology.
Senator Carper. Dr. Benson, you were present at the
creation?
Dr. Benson. One of my colleagues actually did the
development.
Mr. Bucher. That technology, as you mentioned, is focused
on controlling the fine particulate. It's really a more, it's
attempting to be a more cost-effective solution than a
traditional baghouse, as I picture it up there. An interesting
story about when we first brought that facility up and running
in Big Stone, South Dakota is, many of the operators, when they
reported to work those first several mornings after the system
went on line, they came into the control room and said, what's
wrong? Why aren't we operating?
Because they had come to work and every day for 20 years,
they come to work and they'd see smoke coming out of the
smokestack. This time they showed up to work, there was no
smoke, so they said, the plant's not operating. The controllers
said, well, we're at full load. Just an indication of the
ability of these advanced technologies to control emissions far
beyond what it has been in the past.
And they're continuing to operate, right now actually that
facility is down for a week of maintenance and they will be
coming on line about a week from now.
Mr. Monroe. If I might comment.
Senator Carper. Dr. Monroe, please.
Mr. Monroe. We are currently testing at one of my plants a
competition to that device, using similar principles that was
invented by the Environmental Protection Agency out of their
North Carolina laboratories jointly with Southern Research
Institute, a not-for-profit in Birmingham. So it's very
intriguing technology to us, also.
Mr. Bucher. And if I can add one more thing onto that, our
mercury control technology is being designed to work with the
traditional pulse chip baghouse, our advanced hybrid baghouse,
or the co-pack baghouse that Dr. Monroe's referring to.
Senator Carper. Mr. Chairman, I'm going to have to learn
more about baghouses. Thank you all. I hope we'll have a second
round here.
Senator Voinovich. Senator Cronyn?
Senator Cornyn. Thank you, Mr. Chairman, and I want to
commend you for calling this hearing today on this very
important subject, and thank all the witnesses for being here
and sharing your expertise.
I know the Administration has put a lot of work into the
Clear Skies initiative, and I'm grateful for their efforts. I
think the framework proposed has potential, but I'm concerned
about unintended consequences and maybe getting out ahead of
the science before Congress seeks to impose some requirement
that ends up being impossible to meet or certainly not possible
within the economies involved.
But I'm hopeful that technology will ultimately provide
some answers. But I guess my concerns, gentlemen, largely focus
on two areas. One is the importance of maintaining fuel
diversity. And second, on mercury removal. And I want to ask
you in a minute about the technology, more about the technology
that you talked about in terms of meeting the regulatory burden
that would be imposed by the bill.
But in my State of Texas, as no doubt you know, coal,
specifically lignite coal, must remain a viable energy source
for Texas utilities. Forty percent of electricity in Texas is
powered by coal. And I'm not convinced that there's enough
natural gas there to counter-balance a drop in coal usage,
particularly given the limitations that we've imposed on access
to probable reserves of natural gas.
So we find, what I don't want us to do is find ourselves in
a catch-22 where we get out ahead of technology, and I'm not in
any way demeaning the promise, indeed, I'm hopeful, Dr. Bucher,
that you and others are able to finally perfect the technology
that will accomplish the goals that you seek. But I don't want
to be in a position of imposing a requirement by law that
results in reduction in fuel diversity and a dependence on
ever-shrinking forms of energy and in the process, making
electricity so expensive to consumers that it creates
additional problems.
I've been repeatedly told by Administration officials that
they think the technology will be available in the future to
accomplish mercury removal. But I'm struck by the speculative
nature, really, that tell us where we are at this point. And I
know Dr. Bucher, your company, which I read is credited with
producing Gore-Tex and other remarkable inventions, that you
have maintained this technology as confidential given the
proprietary reasons which I certainly respect, and you're not
marketing this technology.
But I just would be interested, perhaps, to hear from each
of you of the consequences of Congress imposing a standard
today that there is not currently technology available to meet.
Dr. Monroe, maybe you can respond to that first, please.
Mr. Monroe. We're sort of acutely aware of that problem,
with the given regulatory program, with the MACT for mercury
that we're struggling now, how do we continue to make coal-
based power without these technologies available. I share your
worry about fuel diversity. The southeast that my company
serves is more heavily dependent than Texas on coal. We also
burn, probably a third of the coal that we burn comes from the
Powder River Basin in Montana and Wyoming, so that issue is
very important to us also.
We see the speculative nature of we hope the technology is
ready in time. We hear it again and again, the NESCAUM report
that Senator Carper refereed to is sort of an article that
reads that if you make a regulation, then the technology will
suddenly appear. Now, I'm a good engineer. My job is to make
things cheaper every day, for my company. And so I work as hard
as I can, and the regulations make me work to do that. But we
could look at other examples of sort of technology approaches
that didn't work. Fusion is one. The nuclear-solar sort of
power that was always 10 years away and had been that way for
40 years running, the new kind of nuclear power plant.
Another example would be California's zero-emission
vehicles, where they've just continued to redefine what those
are and have never really reached the levels that were mandated
by a State regulation there.
To get directly to your point, it really does scare us in
the power industry to think we're racing toward some
regulations or some legislative solution where we don't have
the technologies, so that we're struck with a grim choice of
not providing power to our customers or in violation of the
law.
Senator Cornyn. I take it that you're not an eleemosynary
institution that's involved in providing charitable services in
the form of electric power. I guess there are economic you have
to contend with in all of this.
Mr. Monroe. That's correct. And you know, being a regulated
utility, I have State governments looking over my shoulder
second guessing every move I make, also.
Senator Cornyn. Dr. Benson, would you care to comment on
the challenges that are presented when Government mandates a
standard for which technology is not currently available to
achieve that standard?
Dr. Benson. From the perspective of somebody that does the
research and testing of the technologies, I think there's many
technologies out there that show promise, like W.L. Gore
technology.
Senator Cornyn. Don't get me wrong, I hope you're
successful, ultimately. I'm talking about passing a law this
sessions. So that's my concern.
Dr. Benson. I think there are many technologies. It takes
time, and there are many technologies in the laboratory right
now and in the pilot scale that show some promise. There are a
lot of issues that must be overcome with those technologies to
move them into the demonstration stage. Once the technology
shows the ability to have good performance during
demonstration, the information can be used to develop
performance guarantees. In addition, we need to understand
impacts of the fuel variability issues on the performance of
these technologies.
Senator Cornyn. Dr. Bucher, let me change the questioning
just briefly a little bit and make sure I understood what you
said correctly. Did you say that basically it's difficult for
your company to get financing for a technology for which there
isn't a currently mandated requirement?
Mr. Bucher. I think I may have misled you there a little
bit.
Senator Cornyn. I just want to give you a chance, I want to
be fair to you and let you explain what you meant, if I
misunderstood.
Mr. Bucher. Certainly. I appreciate that.
Not difficult for us to obtain financing, difficult for our
leadership, who's looking at a portfolio of places to invest
their research and development money. They're going to put that
in the area where they feel they're going to have the largest
chance for return. I'm a firm believer in our capitalistic
system. And if the opportunity is there, it's so much easier
for me to go in front of them and say, this is a great
opportunity for not only us as a company, but for us to meet
some of the needs of the Nation. So without that carrot, so to
speak, it becomes difficult for them to embrace these kinds of
programs.
Senator Cornyn. Thank you for clarifying that.
Mr. Chairman, my only concern would be imposing a standard
and then just hoping and praying that there will ultimately be
a technology available. That's my primary concern. Thank you.
Senator Voinovich. I share your concern.
Dr. Monroe, I'm sure you're aware, my State of Ohio relies
a great deal on burning of coal, both from our part of the
country and from some other parts. I'm really concerned about
the whole issue of fuel switching. That's something that's very
paramount in my thinking as the former Governor of the State of
Ohio, and I'm concerned about the environment for our
manufacturers.
Last year I had some real problems with Senator Jeffords'
legislation on the four Ps, and my concern was that if it went
into effect that it would force our utilities to switch to
natural gas. Natural gas already today is really under stress,
and the cost is escalating, in fact I think it's one of the
reasons some of our businesses are in trouble today, because of
the high cost of natural gas. And if we add to that problem
fuel switching, I can see a lot of our industries either
closing down or going some place else. That's not the United
States, somewhere else in the world.
With the revelations expressed by the Administration on co-
benefits and your extensive knowledge of the industry and
technology available in regard to mercury emissions, what do
you think would happen to the utility sector, and you're
talking also for EEI, if the Clear Skies Act was passed as it's
introduced?
Mr. Monroe. First, talking for Southern Company, we support
the approach of Clear Skies. We would like to be working with
the Administration and working with Congress on some of those
details about the timing and the levels. EEI has a slightly
different position than Southern Company on that.
Assuming it was passed as written, focusing specifically on
mercury issues there, the SO<INF>2</INF> and the NOx issues
are, as Chairman Inhofe mentioned earlier, there's not much
uncertainty about NOx controls and SO<INF>2</INF> controls. We
know what they cost. We know how they perform, although my
company's been surprised as well as AEP, with the installation
of selective catalytic reduction systems, with unintended
consequences of those. So it's still not risk free for NOx.
Senator Voinovich. You're talking the SCRs?
Mr. Monroe. Yes.
Senator Voinovich. Yes. I'm well aware of that with the
plume that they had. They actually had to buy out a town in
order to eliminate a problem from that plume.
Mr. Monroe. Our problem has been slightly different. We
have stopped up the catalyst. It has small holes about a
quarter inch in diameter, several million in the gas flow pad,
and we stopped every one of those up and had to shut the plant
down for that. So there are still risks there.
For mercury, as given the cap that's in place now, it would
certainly cost more than I think most people think at the
moment, because it would require an alternative to just the SCR
for NOx and the SO<INF>2</INF> scrubbers to do the additional
mercury control. So that then we would be very interested in
W.L. Gore's technology. We would probably be looking at
building baghouses for, not for particulate control, which we
do a good job at, but only to add something, whether it's that
technology, activated carbon or something that's invented in
the meantime, some absorbent to just capture the mercury.
So that instead of getting sort of the benefits of the
other investments that would require additional investments. It
would make our coal plants more expensive to operate. We would
probably shut down some of our marginal coal plants on that
basis, and it would be yet another push for us to burn more
natural gas.
Senator Voinovich. Dr. Benson, do you want to comment on
that?
Dr. Benson. I agree with Dr. Monroe.
Senator Voinovich. Well, in other words, what you're saying
is, one of the things we're looking at is that we've got the 26
tons and we're talking about increasing that to 34 or between
34 and 46. How much of a difference would that make in terms of
your situation?
Mr. Monroe. The cost to the industry would probably measure
in the several billion dollars a year for that additional
increment, because of the additional baghouses and activated
carbon.
Senator Voinovich. So what you're saying is that 26
probably, that would mandate the baghouses and the activated
carbon and that approach? And let's say, 34, that would not
require that?
Mr. Monroe. I'd have to say that we do not know what that
number would be. The problem we have is we've tested very few
power plants. I can't tell you what that tonnage would be. It's
certainly more, the co-benefits will leave us with emissions of
certainly more than 26 tons. I think the range expressed by the
Administration, 34 to 46, is probably in the ball park
somewhere there.
Having worked with EPA on assumptions in their modeling,
and they're proposing the 34 ton model, my opinion is, and
again with my bias being a utility engineer, I think the
technology is not quite as aggressive, it won't work quite as
well as EPA. So I would tend to look at the higher end of that
range.
Senator Voinovich. Well, the next issue is that if you had
it at 34 rather than 26, how much influence would that have on
the decisionmaking of people like Mr. Bucher and his company?
Mr. Monroe. It would simply be the extent of the market
penetration of these other technologies that will add to the
co-benefits. Certainly from an electricity price, if we have to
do any more to get to the 34 tons, then the 26 would cost even
that much more. It puts more pressure on the western coal
users, whether they're in the west or actually buy the coal
from the west, just because of the technologies that are
available there.
The one thing that the Clear Skies approach does with the
SOx is allow utilities like mine to take some risks on
technologies. If I try a risky technology for mercury on a
trading program, theoretically I can buy my way out of a
failure by going to the market and buying those allowances, as
compared to sort of a strict command and control MACT scenario,
where I'd have to meet it at every plant. So that that scenario
is much more costly, because I can't afford to take any risks
on the technology, so I buy the most robust and therefore the
most expensive.
Senator Voinovich. So the SOx is essential for you to have
the flexibility to move on this area?
Mr. Monroe. Yes.
Senator Voinovich. Well, I think that we're not going to
get that done today, we want to hear from the other witnesses,
but I'd like to really get a sense of, if you went from 26 to
34, what it would have in terms of moving forward on new
technology. Also then, you needed to look at the environmental
benefits that you would get from the difference. That's
something we haven't talked a lot about today. But maybe it's a
subject of a hearing in terms of mercury and what it's
contributing. I read half of it's natural and then half of it's
caused by us, and a lot of it's caused by utilities. And do we,
is there free mercury in the air.
In know one of the things in my State, because in our lakes
we discourage people from eating our fish, particularly
pregnant women, more than once a month or something because of
the fact there's concern it might influence their baby. And so
I need just a whole lot more information in that area. Because
that's what we're trying to look at, is we're trying to improve
again, getting back to harmonizing. We want to provide readily
available low cost energy so that we can have a good economy
and be competitive in the global marketplace. At the same time,
we have to balance that in terms of our environment, public
health and what we know in that arena. That's the real
challenge that we have here sitting at this table.
Mr. Monroe. If I can make a few comments. I'm not a human
health expert, I'm an engineer. But I follow that debate in the
mercury issue. And I would encourage you to hear some more
about the science of that. There's controversy about what low
levels of mercury, and incidentally the only route of interest
is actually through the consumption of fish for humans. That is
the only thing we worry about for mercury exposure.
And there's two competing studies on health effects that
sort of come to different conclusions. A follow-up to one of
them was just published in the Lancet which cast some doubt on
whether the referenced dose that EPA has set forward is, it
suggested it may be much more conservative than necessary.
So I would encourage you and be happy to help supply
suggestions for witnesses.
Senator Voinovich. I hope it's better than what we're
getting on the issue of greenhouse gases and global warming.
We've had several hearings on that, and if you listen to one
side, it's one way, and you listen to the other side, it's
another way. I've always found usually somewhere in between is
where it really is.
Senator Carper. We're not yet in full agreement on the need
to address greenhouse gases and global warming. But at least,
Mr. Chairman, and I suspect Senator Cornyn as well are in
agreement that SOx needs to be in whatever bill we enact.
That's a good thing.
Dr. Monroe, I think you said earlier, I've just been
thinking about this during the course of this conversation,
that, are you a chemical engineer?
Mr. Monroe. I am.
Senator Carper. And a utility engineer as well. Thinking
about all the work that lies ahead for your industry, I just
think, you've got pretty good job protection.
[Laughter.]
Senator Carper. That's got to be a comforting thing.
Mr. Monroe. It's the best time to be in this job and at the
same time the worst time to be in this job.
Senator Carper. Our sons are 13 and 14, and we're talking
about what they're going to be when they grow up. I'm going to
walk away from this conversation thinking more about maybe
chemical engineering as a promising field.
Earlier in your testimony, you referred to the NESCAUM
report that I asked to be made part of the record. There was a
question of whether or not, if we set a standard, a regulatory
standards, somehow that incents industry to come up with ways
to meet that standard. You used, I think, fusion as an example
and said that it's always been 10 years away for the last 40
years. I would just, and I know I've heard that a lot myself,
but fusion was never a regulatory requirement, which is an
interesting point, never a regulatory requirement.
I would make another one of those unanimous consent
requests while the chairman is not listening to me, and----
[Laughter.]
Senator Carper. While he's talking to his close colleague
and associate over there, Mr. Chairman, I'm sorry to interrupt,
but I am going to ask, Senator Lieberman is not here today,
he's not going to be able to join us. He's given me a statement
he'd like submitted for the record. If we could do that, I'd
appreciate it, and he would too. So I'd ask unanimous consent.
Senator Voinovich. Without objection.
Senator Carper. Thank you, sir.
[The prepared statement of Senator Lieberman follows:]
Statement of Hon. Joseph I. Lieberman, U.S. Senator from the State of
Connecticut
Thank you, Mr. Chairman. I appreciate your convening today's panel
on investor risk and climate change. While over the past few years we
have already heard from many witnesses about the range of promising
technologies to control pollutants from power plants, we have not yet
heard about these issues from the perspective of investors. I am
particularly pleased that Denise Nappier, the esteemed treasurer of my
State of Connecticut, was invited to speak on this matter. I trust she
will give an eloquent and persuasive presentation. As you well know,
Mr. Chairman, I have long been concerned about the growing threat of
global climate change and our nation's resistance to taking credible
action to counter it. The science is now overwhelming and indisputable:
carbon dioxide emissions are heating up the planet, and the longer we
do nothing, the worse it will get. That is why I have introduced the
Climate Stewardship Act with Senator McCain-the only legislative
proposal on the table that would actually stem the increase of our
nation's greenhouse gas emissions-and, with Senator Jeffords, have
introduced the Clean Power Act, which would cut the emission of major
pollutants from the nation's power plants.
But the Bush Administration's do-nothing policy on climate change
is much more than a mammoth environmental problem. It also creates two
other kinds of problems.
First, a foreign policy problem. Just this Tuesday, a troubling
poll from the Pew Center for the People and the Press confirmed once
again that our great nation's stature in the world is shrinking. Some
attribute our loss of stature solely to the war in Iraq, but that's
just not the case. Removing Saddam Hussein was the right thing to do,
and much of the world will come to respect us for acting on principle.
No, the core problem is that the world sees an American administration
that on a broad range of issues is happy to lecture but not willing to
listen. As Tony Blair has said, America must not only speak to the
world. To truly lead, we must hear the concerns of our friends and
allies, including the outpouring of concern about climate change and
the consequences of America, the world's largest emitter of carbon
dioxide, doing nothing to stem it. The fact is, America produces about
a quarter of the world's greenhouse gases, but under the Bush
Administration's neglectful watch has shown an unwillingness to produce
any of the world's climate change solutions.
Second, the Bush Administration's neglectful approach to climate
change creates a big economic problem. The ongoing regulatory
uncertainty produced by the Bush Administration's refusal to act leaves
businesses waiting, wondering, and spinning their wheels rather than
making the long-term investments today that they would make if they
were confident of how government would approach this problem. When it
comes to climate change laws, businesses deserve more than instructions
to place their fingers in the wind. They deserve an answer from us in
Washington so that they can get down to the business of serving their
customers, producing profits, and creating jobs.
Institutional investors see the problem quite clearly. Treasurer
Nappier, for instance, is the steward of some $17 billion in pensions
that are the nest egg of Connecticut's working families. Unfortunately,
as we will hear from her, her ability to invest that money wisely has
been impaired by the now chronic uncertainty surrounding what
companies' obligations will be to abate climate change.
Mr. Chairman, my staff has talked with many investment analysts on
Wall Street who tell the same story. There is a general understanding
that constraints on greenhouse gases are an inevitable fact of the
future. Analysts understand the size and the scope of the global
warming problem and understand that America cannot keep its head in the
sand forever. They understand that the climate is changing and
executives are willing to invest in solutions-but they will put off
those investments if they think the regulatory climate will keep
changing each step of the way.
The Coalition for Environmentally Responsible Economies (CERES), a
coalition of environmental, investor and advocacy groups, has long
warned us of the strong link between climate change and investment
risk. In its April 2002 report, Value at Risk: Climate Change and the
Future of Governance, CERES warned that ``there is mounting evidence
that failure to respond to the risks posed by climate change could
result in multi-billion dollar losses for U.S. businesses and
investment portfolios.'' The report found a pressing need for corporate
leaders and institutional investors to tackle climate change more
aggressively, noting that ``it is increasingly evident that the costs
of inaction are likely to far outweigh the costs of action.'' The
report went further to state that ``climate change represents a
potential multibillion dollar risk to a wide variety of businesses and
industries. It should, therefore, command the same level of attention
and urgency as any other business risk of this magnitude.'' Mr.
Chairman, I ask unanimous consent for this report to be entered into
the record.
The World Resources Institute also released a recent evaluation of
the effects of climate change on shareholder value, in this case the
value of oil companies. WRI found that different oil companies were
positioned very differently on this issue, depending on how each
company had hedged its risks in anticipation of policies to address
global warming. For the companies that had acted wisely, WRI saw little
impact; for those that had not done so, WRI saw a loss of more than 6
percent in shareholder value. Mr. Chairman, I ask unanimous consent for
this report to be entered into the record as well.
Finally and most recently, CERES conducted a yearlong dialog among
experts in the electric power sector, investors, and environmentalists
on the issue of climate change. The resulting report, The Electric
Power Sector, Investors, and Climate Change, due to be released today,
concludes that the inevitable rise of carbon-regulating legislation,
along with the direct financial consequences of climate change,
justifies corporate and investor action. This problem, CERES has found,
crosses industry and sector lines, and presents serious risks for all
corporate shareholders alike.
Climate change is real and must be addressed. The heat is on the
Administration to do something, do something decisive, do something
credible, and do something soon. What John McCain and I have proposed
is a moderate, measured, and market-based response to get us on the
right track without creating a shock to our economy. It would help, not
hurt, businesses crying out for a hint of what is to come. It would
improve America's stature in the world. And most of all, it would
protect America from the growing environmental threat posed by global
warming.
Senator Carper. I wondered if I could start off with Dr.
Benson on this. A couple of times in the testimony today I've
heard the term fly ash used. It sounds like it's a product for
which there can be some value, or not. We have a large coal-
fired utility, electric utility in the southeastern part of
Delaware. And if anybody in the audience has ever been to
Bethany Beach or Rehoboth Beach or Dewey Beach or Fenwick
Island, or any of those great Delaware beaches, you've been not
too far away from the Indian River power plant, which uses a
lot of coal and create electricity for the DelMarVa peninsula.
They create fly ash as a by-product of their operation. And
the fly ash has elements in it, mercury among others, but it
doesn't have a commercial value and it has to be landfilled,
which is not inexpensive. And instead of having the ability to
sell fly ash and make some money off of it, they have to figure
out what they're going to do with it, and it costs money to
landfill it. God only knows what kind of potential hazards that
will pose for us later in this century.
Dr. Benson, any comments that you'd like to share with us
no the cost-effectiveness of, or the economic value of dealing
with fly ash and the stuff that goes into it, the mercury and
what are the benefits for some of the new technology that we're
talking about here with respect to resale of taking a waste
product and turning it into something that has market value?
Dr. Benson. The ability to utilize fly ash in various
products, such as cement, use it for cement replacement, use it
in other types of building materials, is dependent on the fuel
composition, which dictates the fly ash composition. For
western coals, there's a lot of calcium in the fly ash, so it's
a great cement replacement material. By adding, for example,
carbon based materials, it decreases the ability to utilize the
ash, because the carbon interferes with the ability of the
concrete formation process. So that's one of the issues.
So you want to look for alternative sorbent technologies,
if there's another mercury sorbent, such as calcium silicate or
something else that can be used, that does not interfere with
the cement making process. Also the W.L. Gore technology, which
does not use a sorbent or a carbon material, does not interfere
with the process of utilizing the material.
The mercury that's absorbed into the fly ash based on our
testing is fairly stable. We've heated the material up over 200
degrees to 300 degrees Centigrade and the mercury stays in the
fly ash. So it seems to be stable once it gets there, with most
technologies that we've been studying.
Senator Carper. Dr. Bucher, I think you made some mention
of fly ash in your testimony. Would you just go back and expand
on that a little bit, at W.L. Gore, when you're thinking about
how to make a product or a process that will have a return on
your investment, how does this issue of turning fly ash into a
marketable commodity figure in?
Mr. Bucher. It figures in very strongly. As Dr. Benson
indicates, some facilities today sell their fly ash, and as you
indicate, some facilities do not. When we go and visit and talk
to some of the plants that are currently selling their fly ash,
when they think about one, not being able to get the revenue
from selling it, and then two, paying someone to put it in the
ground in a landfill, it's a very considerable delta that just
drives them to find any solution that they can other than
having to contaminate their fly ash.
So it's things like that that provide avenues for creative
technologies to come in and solve those problems in a way that
provides extra benefits to those customers, giving them further
reason to employ, and as Dr. Monroe says, take some chances on
some new technologies, because it will provide them that value
in the end.
Senator Carper. Thank you.
Senator Voinovich. Senator Cornyn?
Senator Cornyn. I don't have any further questions, Mr.
Chairman.
Senator Voinovich. I want to thank you very much. This has
been very, very fascinating, and it's certainly been helpful to
me and created some more questions that I need to get answered.
Thank you very much.
Our next panel, and I'll introduce them as they're coming
forward because of our time limitations, and I apologize to
them for their long wait. First is the Honorable Denise
Nappier, Treasurer of the State of Connecticut. Dr. Margot
Thorning, who's the Chief Economist for the American Council
for Capital Formation. Mr. Wes Taylor, President of Production
of TXU Energy. Mr. Jim McGinnis, Managing Director of Morgan
Stanley. Mr. Douglas Cogan, Deputy Director, Social Issues
Service, Investor Responsibility Research Center. And Mr. Mark
Brownstein, Director of Enterprise Strategy, PSEG Service
Corporation.
The chairman suggested that we try to--well, make sure that
your testimony is within the 5 minutes. We would like to have
some questions asked today and we're probably going to have to
wrap up this hearing by 12:30 at the latest. Again, we
appreciate your presence here.
We're going to start out with Denise Nappier, who is the
Treasurer of the State of Connecticut. We're very happy to have
you with us today.
STATEMENT OF THE HONORABLE DENISE NAPPIER, TREASURER, STATE OF
CONNECTICUT
Ms. Napper. Good morning, Senator. I appear before you as
an institutional investor and the principal fiduciary of a $17
billion pension fund representing 160,000 beneficiaries and
plan participants. As Treasurer, I'm elected by the people of
my State who like millions of Americans, seek to ensure their
families' economic future through investments in the capital
markets.
I appreciate the opportunity to testify about the
relationship between climate change, corporate governance and
the well-being of institutional and individual investors.
I know that you have testimony from others more expert than
I on the science of climate change, so I won't go there. But I
will share with you the perspective of an institutional
investor who has the responsibility, the fiduciary
responsibility, to consider the long term value of our pension
funds.
We have all learned about a number of very painful but very
valuable lessons following Enron and the corporate scandals
that followed. We must not allow ourselves to lose sight of
those lessons. We've learned about the disastrous impact on our
investment savings, on our jobs and on the economy.
That is when transparency, accountability and an honest
assessment of risk is not viewed by companies as priorities. As
institutional and individual investors, we need accurate and
complete disclosure information that could affect the current
and future health of the companies we invest. And that goes
beyond accounting to include among other things climate change
as a risk factor.
Now, the consequences of those companies that do not act
responsibly today and take steps to assess and mitigate the
risks associated with climate change can be quite devastating.
For example, companies could face the prospects of losing their
competitive edge, incurring litigation costs or being saddled
with unforeseen capital expenses just to name a few. And all
these factors, all of these factors and others, can erode
shareholder value and place today's seemingly solid investment
in jeopardy.
Now, climate change may well be about our planet's future.
But it is also about the financial risks to corporations and
the impact on the retirement savings of millions of Americans.
As a result, we have every right, as shareholders, to know what
is being done about it and how America's corporations will
protect their bottom line and thereby the value of our
investments.
I believe that this issue is quickly becoming the leading
edge of the next wave of corporate governance issues, and that
the marketplace must begin to closely scrutinize companies to
determine whether they have honestly, directly and thoroughly
evaluated climate change as a risk factor and developed a
proper response to it. In finance, where there is risk there
can also be reward. A report by the Rose Foundation last year,
the Environmental Fiduciary, reviewed the findings of a number
of studies on this issue and concluded that in many cases,
improving environmental performance provides a measurable boost
to profitability and shareholder value, especially over the
long term.
So we have a real opportunity here to not only protect our
shareholder value, but also to achieve added value. Now, while
you in Congress are debating the merits of a legislative
response to climate change, such as whether or not to enact
mandatory caps on carbon emissions, other nations are preparing
to implement the provisions of the Kyoto Protocol, which
include mandatory provisions.
Many of these companies in which we invest, particularly
companies such as GE, Exxon-Mobil and Chrysler, operate in a
global economy. For them, carbon regulation is not a future
possibility, it is an imminent reality. And many State
governments are also considering and enacting legislation
addressing climate change.
Now, beyond the regulatory environment, shareholders are
now advancing this issue. This year, resolutions on climate
change were introduced at 23 U.S. companies and the Connecticut
pension fund filed two of these and co-filed on a third.
Shareholders are asking companies to report on their
greenhouse gas emissions, or to set a goal to reduce emissions
or to report on the potential future financial risks to the
company from their past, present and future emissions and to
issue a plan to mitigate that risk. Some of these resolutions
were withdrawn after productive discussions between
shareholders and management. However, you should know that most
of the resolutions were opposed by management and the
directors. That opposition may prove to be shortsighted. That
is penny wise and pound foolish.
At an annual shareholder meeting of American Electric
Power, and I realize that my time--I need to wrap up.
Senator Inhofe [assuming the chair]. I'm sorry. We'll have
to go on to Dr. Thorning. Dr. Thorning?
STATEMENT OF MARGO THORNING, SENIOR VICE PRESIDENT AND CHIEF
ECONOMIST, AMERICAN COUNCIL FOR CAPITAL FORMATION
Ms. Thorning. Thank you, Mr. Chairman. I appreciate the
opportunity to appear before this committee to comment on the
impact of the Clear Skies Act and the proposals to cap carbon
on the financial health of the utility sector.
First, the Clear Skies amendment is, while a challenge for
the utility industry and in the judgment of many, not likely to
significantly imperil the financial health and well-being of
the utility industry. Carbon caps on the other hand are a
different story. Some proponents of carbon caps suggest that
this will give certainty to the investing community.
I think that the argument is flawed for three reasons.
First, the goalposts are not likely to stay the same. The Kyoto
Protocol targets, which were just discussed and which are
similar to the targets in Senator Jeffords' bill, are not
likely to hold. The European Union is already moving beyond the
Kyoto target. Proponents of climate change measures there are
suggesting targets of perhaps 60 to 70 percent reductions in
CO<INF>2</INF> by the year 2050 will be required. And that's
what they'll be discussing at the COP 9 meetings in Italy this
fall.
So the goalposts are likely to shift, thereby increasing
investor uncertainty and making it difficult for utilities to
plan capital structures. If we go down this path of carbon
caps, there will be increasing pressure from the European Union
to try to keep up with them in terms of the targets that they
are suggesting should be adopted.
Second, U.S. firms, if they accept these carbon caps, will
be held to them. We have a different regulatory structure in
the United States compared to the European Union. In Europe,
there is much more flexibility between regulators and the
regulated. Utility companies that fail to meet their emission
targets, and by the way, Europe is not on target to meet its
Kyoto targets, are likely to have much more flexibility and not
face the draconian penalties that U.S. firms would face if they
failed to meet their targets. It's another source of
uncertainty.
Third, as energy prices rise, if we put in place carbon
taxes, the demand for electricity, the product is likely to
fall as energy intensive sectors move abroad at an even quicker
rate than they really are and consumer demand and industry
demand falls. That's another source of uncertainty for the
utility community, the demand for their product.
A better approach, I think, is based on the one the Bush
Administration is advocating, which is an 18 percent reduction
in greenhouse gas emissions per dollar of GDP over the next
decade, compared to the 14 percent baseline forecast. One way
to help achieve that goal is to take a hard look at U.S.
Federal tax policy. A study that the American Council for
Capital Formation Center for Policy Research commissioned
recently showed that out of 14 countries, the U.S. has the
slowest capital cost recovery for investments in energy assets.
I ask you to note Table 1 in my testimony which I'd like
included in the record. Table 1 shows that, for example, for
transmission investments and transmission assets, U.S. investor
only gets 29 cents on the dollar back after 5 years, whereas in
Brazil they get 50 cents back on the dollar. In China, they get
$1.04 back on the dollar. They are subsidizing those types of
investments.
Similar story for combined heat and power and for
investment in other energy assets. So as the Treasury study in
the year 2000 suggested, because of the increasingly
competitive nature of the utility industry, we need to take a
hard look at the class lives and depreciation schedules that
are provided for investments in those assets and speed them up,
with a goal of making it easier for companies to make the kind
of expenditures that will let them reduce CO<INF>2</INF>.
Finally, I think we need to recognize that climate change
and addressing the potential threat of climate change is a
global problem. Imposing carbon caps on one industry and one
country or even in the industrialized world will make virtually
no difference in global concentrations of CO<INF>2</INF> in the
next hundred years. Because the growth in emissions, for
example, 84 percent of the growth in CO<INF>2</INF> over the
1990-2010 period is coming form China and Indian. So instead,
we need a global solution that helps transfer existing
technologies for clean coal and other energy sources to the
developing world, so that they can try to meet the aspirations
of their population for faster economic growth, as well as
emitting less CO<INF>2</INF> and other emissions.
Senator Inhofe. We'll have to cut it off at that point.
Senator Voinovich. Senator Inhofe? During question and
answer time, you'll both have an opportunity.
Mr. Taylor.
STATEMENT OF WES TAYLOR, PRESIDENT OF PRODUCTION, TXU ENERGY
NORTH AMERICA
Mr. Taylor. Chairman Inhofe, Senator Carper, Senator
Cornyn, my name is Wes Taylor and I'm President of Production
at TXU Energy North America.
I appreciate the opportunity to appear at this hearing and
provide TXU's perspective on Senate Bill 485, focusing on the
capital investment ramifications of emission reductions. As one
of the Nation's largest energy providers, TXU made
environmental stewardship a corporate priority long ago. Since
1990, TXU has added more than 2,600 megawatts of generation
with zero air emissions. Our commitment to renewable energy has
increased to the point where we are one of the largest
purchasers of wind energy in the Nation.
TXU has been among the Nation's leaders in the voluntary
reduction of greenhouse gas emissions, eliminating, avoiding or
sequestering CO<INF>2</INF> emissions by more than 193 million
tons since 1991. TXU has decreased its rate of SO<INF>2</INF>
emissions by 38 percent, decreased its rate of NOx emissions by
70 percent and our SO<INF>2</INF> and NOx emission rates remain
below the national average.
Despite these significant accomplishments, more remains to
be done. TXU supports President Bush's efforts to reduce
SO<INF>2</INF>, NOx and mercury emissions through a three
pollutant framework such as that used in Senate Bill 485.
I want to emphasize that this legislation must not cause
the shutdown of power plants, which are vital to our Nation's
electricity infrastructure, and also must not cause fuel
switching that could impair fuel diversity and adversely impact
our Nation's economy. TXU has a credible basis for issuing this
caution. Our company has been an industry leader in the
reduction of SO<INF>2</INF> and NOx emissions. We are very
familiar with available control technologies and have a good
understanding of both the cost and the effectiveness of these
controls.
Unfortunately, S. 485's provisions regarding mercury
emissions go well beyond co-benefits in phase one and the
control technology to achieve these reductions is unproven and
undeveloped. Therefore, no one has the ability at this time to
fully evaluate the costs associated with controls necessary to
achieve the mercury emission limitations contained in the bill,
and this significant financial uncertainty may have the
unintended consequence of causing plant closures or fuel
switching rather than investing in SO<INF>2</INF> and NOx
control technology.
The adverse economic impacts of such actions may be totally
disproportional to the harm sought to be addressed by S. 485.
The EPA itself states that less than 1 percent of global
mercury emissions are produced by U.S. power plants. So I urge
the committee to proceed with caution and understand all the
facts concerning the economic and other impacts created by the
public policy contained in this legislation.
I have submitted a prepared statement with additional
details. I am also submitting for your use the 2002
environmental review of TXU, which contains details on our
SO<INF>2</INF> and NOx emission reduction programs and
documentation of our exemplary environmental record.
I respectfully request that my prepared statement and this
report be included in the record of this hearing. In closing, I
again want to thank you for the opportunity to be here and I'll
be pleased to respond to questions.
Senator Inhofe. Thank you, Mr. Taylor. And for all of you,
your complete statement will be made a part of the record.
Mr. McGinnis.
STATEMENT OF JIM MC GINNIS, MANAGING DIRECTOR, MORGAN STANLEY
Mr. McGinnis. Mr. Chairman, thank you. Senators, good
morning. My name is Jim McGinnis, I'm a managing director of
Morgan Stanley, the investment banking division, with
responsibilities in providing advice on capital raising,
restructuring and mergers and acquisitions involving companies
in the energy sector.
Senator Carper, you might be interested to know my wife and
I make our home in Greenville, Delaware, although my office is
in New York.
Senator Carper. I know that.
Mr. McGinnis. I focus my work on power and energy
providers, utilities and on regulated competitors alike through
a 14 year period characterized by nearly continuous and
episodically chaotic structural change in this sector. The
utility and power generation energy is a large user of investor
capital at some $800 billion of institutional and individual
investment dollars deployed in the Nation's power and gas
utility and generation sectors.
Yet despite that large number, investor sensitivities to
smaller incremental cash-flows requirements for debt repayments
or new capital spending can sharply affect any individual
company's access to capital. And an event related swell of
concern in the market can and has in the past 12 months
effectively cutoff access to capital for even large companies
for significant periods of time.
I believe that this investor sensitivity drives a basic
need for clarity in multi-emissions legislation. Capital
providers to the industry can be expected to react poorly to
financially significant expenditures required of utilities and
unrelated generators in the context of potentially shifting
requirements, on proven technologies and uneven regulatory
treatment. This need for clarity has heightened importance now,
at a time when industry participants have been roiled by
unprecedented financial disruptions and failures, and by
persistent uncertainties elsewhere in the public policy arena.
Investors and company leaders are currently wrestling with an
unprecedented variety of fundamental uncertainties, State by
State changes and policies related to industry restructuring,
purchase power contract disputes, as in California, accounting
standard revisions related to energy purchasing, hedging and
trading activities, uncertainty over aspects of currently
pending legislation such as PUHCA reform, FERC transmission
policy, transmission siting rules and transmission tax policy
on transfers and ownership, and certain aspects of bankruptcy
code reform, just to name a few.
One important attribute of legislation to reduce power
generator emissions which supports the objective of clarity is
the abundance of market signals from freely traded emissions
allowances. Allowance trading improves the ability of affected
companies to make clear choices as to the most cost-effective
of various strategies they can employ in meeting emissions
reduction strategies targets, and promotes capital efficiencies
when capital is scarce.
Now a few comments on financial stress in the industry. The
electric sector is in the midst, though perhaps the trailing
end, of the worst ever period for credit rating deterioration.
Since January 1, 2002, we have seen 232 separate rating
downgrades, some of multiple rating categories at one time
versus 18 rating downgrades. These downgrades are a symptom of
massive investor losses on bonds and bank loans to companies in
the sector and the merchant power generation marketing in
particular.
Also during the 2 years ending March 31, 2003, equity
losses for investors have been staggering as well. I won't
repeat some of the numbers that have been included in my
written statement.
There are related impacts on utilities from the recent
merchant power sector value destruction episode. In recent
years, statewide restructuring in California, New York,
Illinois, Texas, Pennsylvania, Delaware and Washington, DC. has
resulted in large legacy generation portfolios of certain
incumbent utilities to be transferred in those locations to
unregulated power merchants, many of which have experienced a
sharp decline in financial strength, and are counter-parties to
the host utilities in meeting their demand needs for legacy
customers.
Thus in evaluating legislation to reduce power generator
emissions, which envisions one of the Nation's most ambitious
private investment programs ever conceived, I would submit that
the committee members examine several important market
dynamics, multiple critical uncertainties in upcoming energy
policy decisions, uncertainties related to fuel costs and
availability and generally the weakened financial capacity of
the industry's generation participants.
Thank you.
Senator Voinovich [resuming the chair]. Thank you very
much.
Mr. Cogan.
STATEMENT OF DOUGLAS G. COGAN, DEPUTY DIRECTOR OF SOCIAL
ISSUES, INVESTOR RESPONSIBILITY RESEARCH CENTER
Mr. Cogan. Thank you, Mr. Chairman and members of the
subcommittee. My name is Douglas Cogan. I am the Deputy
Director of Social Issues for the Investor Responsibility
Research Center. I'm honored to have this opportunity to share
with you an investor perspective of clean air legislation,
especially as it concerns climate change.
Our Nation's electric utilities account for 40 percent of
America's and 10 percent of the world's man-made CO<INF>2</INF>
emissions. Addressing climate change necessarily involves this
industry. Companies and investors that ignore this fact do so
at their own peril. Investors loath uncertainty, as you know.
Certainty will not be achieved until carbon dioxide is
recognized as an emissions source that will be managed and
controlled.
Electricity providers are poised to invest tens of billions
of dollars to reduce power plant emissions of NOx, SOx and
mercury. The concern of many investors is that the value of
these investments may be compromised if they fail to address
CO<INF>2</INF> emissions as well. A more prudent and certain
approach would be to consider these four emission sources
together as part of an integrated strategy.
Consider what Jim Rogers, chairman and CEO of Cinergy, one
of the Nation's largest coal burning utilities, told this
committee 2 years ago. He said, ``Who will make a decision to
invest a billion dollars in a new coal plant if you can only
guess about future regulation? A new power plant today that
fails to address CO<INF>2</INF> will be as dated in 5 years as
current law is today.'' Investors have raised this issue with
electric utilities over the last 10 years through the filing of
shareholder resolutions. With mounting support from large
pension systems and endowments, shareholder support for
corporate disclosure on climate change has increased
dramatically.
At three of the Nations' largest electric utilities, AEP,
TXU and Southern, the support level has reached almost 25
percent for the resolutions voted on in the last annual meeting
season. Today you are hearing testimony about processes
electric utilities use to analyze capital investment decisions
relating to emissions control. Such analyses involving
scenarios and decision trees are part of good governance
practices with respect to climate change.
Yet when it comes to investor disclosure, these analyses
are not yielding much useful information. Statements appearing
in form 10(k) filings of electric utilities typically say that
management is unable to predict the impact of the Bush
Administration proposal or related climate change legislation,
and that possible material impacts cannot be determined at this
time. Such statements offer neither comfort nor guidance to
investors. But they are typical in terms of the statements that
we see in securities filings. That is one reason why
shareholder resolutions seeking more information from
management on climate change are setting record proxy votes.
Companies working with investors can take several steps to
improve governance practices on climate change. IRRC in a soon
to be released report commissioned by the CERES coalition of
investor and environmental groups identifies 14 specific
governance actions. I will highlight three vitally important
ones here.
First, companies should provide regular assessments of the
climate change issue to shareholders, based on systematic board
reviews of company financial risks and opportunities. Second,
companies need to set CO<INF>2</INF> emissions baselines and
provide annual emissions data to investors, so they can gauge
prevailing emissions trends. Most important, utilities should
be making forward-looking disclosures of their CO<INF>2</INF>
emissions. Investors cannot begin to make meaningful
evaluations of the impacts of clean air legislation called here
as the most aggressive clean air initiative in our history,
until they have access to this forward looking information.
Congress can facilitate this process by requiring utilities
and other major carbon emitters to report not only past
emissions data but also future projections in their securities
filings. To be fully transparent in this disclosure, aggregate
emissions data, as well as emissions intensity ratios, should
be provided.
The most helpful thing Congress can do, however, is to
establish once and for all that carbon dioxide is an emission
source that will be managed and controlled. Many investors see
this coming. Regardless of the targets and time tables, this
act alone will provide essential guidance for investors and
company directors who now have climate change on their
corporate governance agenda.
Thank you for this opportunity to testify.
Senator Voinovich. Thank you.
Mr. Brownstein.
STATEMENT OF MARK S. BROWNSTEIN, DIRECTOR, ENTERPRISE STRATEGY
Mr. Brownstein. Mr. Chairman and members of the committee,
good morning. I'm honored to be here this morning to represent
Public Service Enterprise Group and the Clean Energy Group.
PSEG is a diversified energy company with over $25 billion
in assets and over $8 billion in annual revenues. Among the
assets we own are 13,000 megawatts of electric generating
capacity operating or under construction in New Jersey, New
York, Connecticut, Pennsylvania, Ohio and Indiana. Clean Energy
Group is a coalition of companies with more than 100,000
megawatts of generation capacity nationwide including coal,
oil, gas, nuclear and renewable. The members of CEG, ConEdison,
Entergy, Excelon, KeySpan, Northeast Utilities, PG&E National
Energy Group, Sempra Energy and ourselves, are committed to
promoting progressive environmental policies that are
economically sound and sustainable.
PSEG, which celebrates its 100th anniversary this week, has
long believed that environmental performance is one indicator
of overall business performance. That being said, our eye is
never off the bottom line. In our view, environment and
economics are inseparable and as with many things in life, the
secret to success is finding the right balance.
If you remember only one thing from what I say here today,
please remember that one word, balance. For PSEG and CEG, the
single greatest value to be derived from Federal multi-
pollutant legislation, aside from the public health and
environmental benefits themselves, is certainty. And the best
way we know to achieve certainty is through a public policy
outcome that strikes the right balance between environment and
energy policy objectives.
I'm aware that this is the third hearing that you've held
on the many questions surrounding multi-pollutant legislation,
and I'm also aware that various stakeholders have come before
you to argue that the current proposals on the table either go
too far or don't go far enough. From day one, our goal in this
debate has been to seek and encourage consensus. For we believe
that it is only through consensus that we can achieve the kind
of regulatory stability essential to the health of our
industry.
You've heard from others here today about the importance of
certainty, and I echo that concern. This is a very capital
intensive industry, where large investments are made in assets
that last 30 years or more. Making large bets on the future is
an inherently risky proposition, and no amount of legislative
activity on your part can offer us 100 percent certainty.
But to the extent that the trajectory of future
environmental requirements looms large in the planning of any
major player in our industry, you can make a significant
difference by crafting legislation that clearly articulates
expectations over the next 15 years, at least. The past two and
a half years have been a tumultuous one for our industry. And
we don't need any more excitement.
But where some people might argue that now is the wrong
time to set new environmental requirements, we would argue that
to take this do nothing approach would be to kill us with
kindness. Whether you believe that the current oversupply of
generation and capital crunch will last two or 5 years, the
fact of the matter is that current market conditions in our
industry are part of a cycle. At some point, hopefully soon,
companies like ours will begin to make new investments in our
Nation's energy infrastructure. And when we do, it is critical
that we have clear understanding of the environmental
requirements we will have to meet. Otherwise, I feel we will be
making suboptimal investments.
Nowhere is this more true than on the issue of carbon
dioxide regulation. First off, let me state for the record as
we've said many times in the past, PSEG believes that President
Bush was right to reject the Kyoto Protocol. The reductions
contemplated under that agreement demanded too much, too fast
for our industry and our economy to handle.
At the same time, we think the issue of climate change is
real, and we believe a domestic regulatory response is both
necessary and inevitable. Given that our industry is singularly
responsible for over a third of the Nation's greenhouse gas
emissions and 10 percent of the global greenhouse gas
emissions, we cannot and should not dodge this issue. With this
perspective n mind, we believe that we are better off as a
company and as an industry if we develop and implement a
moderate response now, rather than wait 10 years, only to find
that the political problem is now worse or that the
environmental problem requires a more drastic response.
In the investment decisions that we have made in the
interim, we're dead wrong. This is one of the reasons why we
think the bill introduced by Senators Carper, Chafee and Gregg
makes such an important contribution to this debate. We're
encouraged by the leadership that the Bush Administration has
shown on the issue of multi-pollutant legislation and we deeply
appreciate the leadership that Senator Inhofe and you, Senator
Voinovich, have shown in tackling this very difficult issue.
We encourage you in your efforts to find that balance that
I talked about earlier, and I thank you for this opportunity to
testify.
Senator Voinovich. Thank you, Mr. Brownstein.
Again, I want to thank all the witnesses for being here
today. Dr. Thorning, we've heard several of the witnesses talk
about the need to place a cap on CO<INF>2</INF> emissions to
help the industry. However, if a cap is placed on
CO<INF>2</INF> emissions, utilities, from what I understand,
will be forced to fuel switch away from low cost, abundant and
reliable coal to natural gas. As I'm sure you know, natural gas
prices will only continue to increase as pressure becomes
increasingly greater already in a tight market.
How have the increased natural gas prices over the past few
years affected companies in other sectors, such as the chemical
and agriculture industry's ability to invest in the market in
general, and has it affected utilities that rely primarily on
natural gas for their generation?
Ms. Thorning. That's an excellent question, Mr. Chairman,
and I think most of the people in this room know that with
respect to the higher natural gas prices, our chemical industry
has been adversely affected, fertilizers, and others that are
dependent on gas have been very hard hit and face reduced
competitiveness, not only at home but globally. So industry has
been very hard hit in terms of trying to maintain
competitiveness.
The issue of placing carbon caps, which presumably would
encourage fuel switching, is one that I think a lot of research
shows would significantly increase natural gas prices and make
it even more difficult for the U.S. economy to recover from its
current slow growth.
Senator Voinovich. It is a major problem.
Ms. Thorning. It is a major problem.
Senator Voinovich. Is it affecting the stock prices of any
of the companies that are highly reliant, for example, the
chemical industry?
Ms. Thorning. Certainly it is. Stock prices have taken a
very hard hit in the energy intensive sector. The surge in gas
prices is certainly part of it.
Senator Voinovich. Thank you. Mr. Brownstein, the political
reality we face in Congress is that the regulation of carbon
will not become law. We went through that last year. It's not
going to happen. And the whole issue is, in light of that fact,
what is the wisest action for the Senate to take, pass a bill
that provides certainty now for SO<INF>2</INF>, NOx and mercury
and get on with it, or should we just wait until the time comes
when we deal with CO<INF>2</INF>?
Mr. Brownstein. Well, certainly, Senator, I'm in no
position, have no expertise to comment on political dynamics in
this body or in Washington. I can only bring to you the
perspective of my company and my shareholders, which is in a
perfect world, I suppose, having some form of carbon price
signal today would be much better for us than waiting.
I suppose the question of how our company would view
legislation coming out of this committee or the Senate, and how
we would feel about that, would depend a lot upon the details
in it. But I'm hopeful that perhaps we can work with you and
some others to help change some minds about the value of doing
something on a moderate basis for carbon in the interim.
Senator Voinovich. Would a moderate basis not include a
cap?
Mr. Brownstein. My view is that you need some type of price
signal out there. We're very supportive, Mr. Chairman, of
efforts to provide Government support for the development of
IGC technology, geological sequestration of carbon. Coal is a
very important of our generation mix and we want to make sure
that it continues to be an important part of our generation
mix. But at the end of the day, our concern is that as
promising as those technologies are, without some sort of price
signal that values the carbon benefit that they bring to the
table, we're concerned that they will never be economic in the
current marketplace.
Senator Voinovich. How much of your group's generating
capacity is attributable to coal?
Mr. Brownstein. Generating capacity, sir, is about 21
percent or so, about 26 percent of the megawatt hours we
generated last year came from coal.
Senator Voinovich. So it's about a quarter of all your
group is coal generated?
Mr. Brownstein. That's right.
Senator Voinovich. I have, Mr. Taylor, I'm out of time.
With the implementation of the Clean Air provisions, other
Federal regulations and State clean air laws combined to create
uncertainty for electricity generators, they do have an impact
on the ability of private sector utilities to raise capital and
make strategic long term capital investments such as decisions
on the purchase and installation of emission control
technologies.
A prime example of this is the recent filing by PG&E
National Energy Group which requested permission to shut down a
745 megawatt coal-fired plant in Massachusetts because it
cannot meet the deadline to instal $125 million worth of SCRs
and scrubbers. The New England independent system operator is
likely to rule that the plant must stay on line in order to
prevent blackouts, forcing either the State of Massachusetts to
loan the money to the utility or the ISO to pay for the
installation of the SCRs and scrubbers. In either case, the
cost will likely be passed on directly to ratepayers. I'd like
to add this article that recently appeared in the record. And
I'd like to ask, is it reasonable to assume that we would see
similar scenarios if Senator Jeffords' four P bill would have
been enacted last year?
Mr. Taylor. Chairman Voinovich, I think that the addition
of a fourth P to the legislation would exacerbate this problem
and would cause the problem that this company had with their
Salem Harbor plant to recur many more times around the Nation.
Some of my fellow panelists this morning have talked about the
certainty that would come by adding the fourth P to the bill.
In my opinion, the only certainty that we would have from that
would be the certainty that we would use less coal, use more
natural gas and result in higher prices for both electricity
and natural gas. I believe that it would harm our Nation's
economy.
Senator Voinovich. Thank you.
Senator Carper.
Senator Carper. Again, this is another excellent panel, and
we're grateful to each of you for making time in your lives to
be here with us today and to share your input. Mr. Taylor, I'd
just say, I'm the only native born West Virginia Senator in the
U.S. Senate. I'm hoping to go to the Carper family reunion the
first Saturday in August. I assure you, I don't want to go to
that reunion having anybody there think that I'm not interested
in the economic well-being of my native State and the coal
industry within that State, from which I was born.
And you make an assertion that if we do take, given some
balanced steps, reasonable, I think modest steps with respect
to CO<INF>2</INF>, and we include a cap and tarde system, the
opportunity for sequestration really to use a lot of
innovation, that we're going to see a wholesale shift from coal
to natural gas. There's actually been some pretty good
empirical analysis that says that's not really the case, at
least when you take a reasonably balanced approach. And maybe
we can have a conversation about that later.
But the last thing I want to do is push people out of coal
and exclusively into natural gas. We're aware of the
consequences of that for a company like Dupont, which is
headquartered in my State. We're aware, we have a lot of
agriculture in my State, and we're aware that as the costs of
natural gas go up, it has an adverse impact on agriculture,
too.
So for us, part of the challenge is to find ways to, as we
look to control the emissions of CO<INF>2</INF>, to do so in a
way that doesn't lead to this wholesale shifting away from coal
and makes less economically viable some of our major
industries, including chemicals and agriculture.
I was riding down on the train this morning, Mr. Chairman,
and sometimes I read the paper. Today I was taking a look at
the morning paper and I came across a small article in our
paper from Delaware about a lawsuit that I think several States
had filed against EPA to force recognition of CO<INF>2</INF>. I
think there were three States that were listed. And I believe
Connecticut may have been one of the States.
I know you're not the Attorney, you're the Sate Treasurer.
A more important job, I used to be State Treasurer of Delaware.
Almost as important as the Auditor. What were you, the Auditor
of, I know you were the major, were you the auditor?
Senator Voinovich. Of Cuyahoga County.
Senator Carper. Another important job. But are you aware of
the lawsuit that's been brought? I think it involved
Connecticut, maybe a couple of other States.
Ms. Nappier. I am aware of the lawsuit, and it essentially
says that the Federal Government should step up to the plate
and identify CO<INF>2</INF> as a pollutant that ought to be
regulated, that we should have uniformity as it relates to the
need to lower emissions. And put it under the, I believe it's
the P3 legislation, to make it P4.
Senator Carper. Thank you. You were cutoff, you ran out of
time and didn't have a chance to finish up your testimony. And
I'm not going to go back and ask you to read it, but anything
that you wanted to convey to us or just reemphasize?
Ms. Nappier. Yes, that shareholder votes in favor of
climate change resolution has doubled over the last 2 years. I
think that evidences the growing interest to properly address
climate change, going out into the future.
The other thing is that CERES, which is a coalition of
environmental groups and institutional investors, has had a
year-long dialog on this whole topic. An important study is
being released today as we speak here. I would hope that your
committee would sort of avail themselves of that report, some
important information coming out.
Last, that we do have a, I am calling for an institutional
investor summit this fall that will take a very close look at
climate change, what needs to happen to better quantify and
assess the risks associated with climate change, along with the
need to mitigate that risk. But a group of us will be coming
together to do just that. And I believe that if we look at
climate change as merely an environmental issue, we are missing
the point. It is an investor security issue of the highest
magnitude.
Senator Carper. Thanks very much. Mr. Chairman, I hope we
have another round, but thanks very much.
Senator Voinovich. Senator Cornyn?
Senator Cornyn. Senator Carper, unfortunately I had the
misfortune to be Attorney General for 4 years in my State.
Senator Carper. There are worse misfortunes.
Senator Cornyn. A whole State can't be held accountable for
the actions of a single Attorney General.
[Laughter.]
Senator Cornyn. Mr. Taylor, I'm going to pick on you a
little bit, because we come from the same place and your
company is the largest electric generator in Texas. I'd like
for you to clarify a few things for the record for me and for
the subcommittee. Your company has a generation mix that
includes coal, natural gas, nuclear and renewable. During our
subcommittee hearings on the Clear Skies proposal, we've heard
varying claims regarding the level of emissions controls that
are currently in place at coal-fired plants. Would you give the
subcommittee a sense of the emissions controls that TXU
operates at its coal-fired plants and when those emissions
controls were installed?
Mr. Taylor. Senator Cornyn, at TXU we have nine generating
units that use lignite and coal. Five of those generating units
had scrubbers installed at the time they were built. This was
in the late 1970's, roughly 25 years or so ago.
Since that time, we have spent a great deal of money in
upgrading those pollution controls and adding additional
pollution controls. About five or 6 years ago, if memory serves
correct, we added some, a device called a compact hybrid
particulate collection system. It was very much like one of the
systems that the gentleman on the second panel from the Gore
company described as an advanced technology that removes very
fine particulates. We spent $121 million installing that
system.
We have spent $100 million, roughly, upgrading the
scrubbers on our plant since 1995. We have spent $230 million
on NOx controls at all of our power plants since 1997. So the
total just since the early 1990's is in excess of $450 million.
Senator Cornyn. Well, obviously TXU has committed
significant resources to control various emissions. Can you
explain to us why the circumstances surrounding the proposed
control of mercury emissions are different?
Mr. Taylor. Senator Cornyn, first of all, TXU very much
supports the concept of the multi-pollutant legislation, and we
certainly commend President Bush and the Administration on the
introduction of it. We have a great deal of certainty with
regard to how much it costs to control SO<INF>2</INF> and how
effective those controls are. The same thing is true for NOx.
We have no technology available for mercury control, other than
what we get through co-benefits. We would be faced, under this
bill as currently filed, with spending some $400 million to
install additional scrubbers on our unscrubbed power plants,
which we, by the way, are ready and willing to do. We would
probably spend another $100 million or so on additional NOx
controls, which we are ready and willing to do. But if we have
to do that and also are facing a mercury control limit which we
cannot meet, then our option would probably be that we would
not install the SO<INF>2</INF> controls, not install the NOx
controls, but simply shut down or fuel switch those units when
2010 gets here. I cannot overstate the difficulty that we would
have in committing capital for further SO<INF>2</INF> and NOx
reductions if we knew we could not comply with mercury
reductions with any existing available technology.
Senator Cornyn. If TXU and utilities generally decide to
just give up on coal and go natural gas, what are the financial
prospects, what are the ramifications of that?
Mr. Taylor. We believe, first of all, that it would drive
up our cost structure very considerably. The lignite and coal
that we burn at our company is just over $1 per million BTU, I
think $1.20 or so on average this year, if memory serves
correct, whereas natural gas prices are currently $6. We're one
of the largest generators in the United States, and it would
add several billions a year to our cost structure. That would
make the prices that our customers pay for electricity higher.
We believe it would also drive up the cost of natural gas, and
that would have severe adverse impacts on consumers, as well as
for industry and particularly those industries that use natural
gas as a feedstock, like the petrochemical industry and the
plastics industry, for example.
Senator Cornyn. Thank you very much. I'll yield back my
time.
Senator Voinovich. Mr. McGinnis, you've, and I apologize, I
wasn't here to fully get your testimony, but the real issue
here is, we have a kind of a patchwork, do source review, NOx
SIP call, 126 petitions and so on and so forth. And we're
trying with this Clear Skies legislation to come up with some
sensible plan that will reduce emissions and improve public
health and at the same time leave this country in a competitive
position in terms of the global marketplace.
Sitting from your perspective, would the passage of this
legislation make it more attractive for you to finance some of
the things that Mr. Taylor talked about as contrasted from the
current situation where we have all these other things that are
in place?
Mr. McGinnis. Senator Voinovich, you address the question
of whether it is easier to finance. There are going to be a
number of issues, a number of inputs to market pricing of bonds
and stocks. But I will say that a gist of the part of my
remarks focused on the need for clarity. And investors seek
clarity in an industry which has an environment of
uncertainties, fundamental uncertainties related to regulatory
policy and other matters.
So with respect to a Clear Skies bill, it does bring
clarity on these three emissions. I'd also say that with
respect to the adoption of additional restrictions on emissions
that would use technologies that may be beginning to be
introduced or being developed in R&D labs but are not yet
proven with unknowable costs yet, doesn't help on the clarity
point. It decreases clarity, decreases certainty with respect
to how investors think about the future profits of those
companies.
Therefore, more certainty is better here. I think more
clarity would help investors get comfortable at a time of
uncertainty otherwise, to put additional dollars into the
companies that are going to need significant capital raised to
embark on this emissions reduction program.
Senator Voinovich. There seems to be some strong opinion of
some of the witnesses here that we have to add carbon to make
it the fourth P. The issue is, if we did that, would that make
it better for you or worse for you or wouldn't it matter?
Mr. McGinnis. Speaking from the perspective of investors
and access to capital, the flow of funds, what would improve
the flow of funds, what would make financing these more
efficient. Adding a fourth P without the technology in place to
getting to the emissions standards apply to the fourth P or
clear costs associated with the equipment required to meet
those standards, potentially even technology to quantify the
amount of the emissions creates more uncertainty than not
having that fourth P in the bill.
So there would be a lack of clarity on what amounts the
companies would have to spend over what period of time, because
we don't have the technology in place to deploy.
Senator Voinovich. Do you have some of the same concerns
over the issue, you've heard the testimony on mercury, the same
concerns about that? We're struggling here with a number, and
as I mentioned before, when we inserted the number into the
legislation, there was a lot of people that said it was
unrealistic because it was too low to take advantage of co-
generation. How do you feel about that?
Mr. McGinnis. Senator, in particular, I would want to know
what the costs would be. If I'm an investor in a company that
is newly faced with an additional requirement for mercury
reductions, before I make an investment of reasonable size, I
would want to know what those costs would be to meet that new
hurdle. And in the absence of such knowledge, I have to add
that to the list of other uncertainties about that entity. I'm
likely to migrate, my choice is likely to migrate to a company
that has greater certainty perhaps in another sector.
Senator Voinovich. Thank you.
Ms. Nappier, the Energy Information Administration has
projected that electricity prices would raise by some 25 to 30
percent if the 4-P bill was adopted from last year. Natural gas
prices would risk dramatically. How could that be good for the
shareholders of a utility and for that matter, and I don't know
what the mix or where you get your energy from, but in a State
like my State, where we would fuel switch, our manufacturers
would have to pay about 45 percent more for their electricity
and commercial about 35 and our homeowners about 25. How does
it make it better if you add a fourth P to this legislation?
Ms. Nappier. Based on the way you've described the
scenario, it would erode shareholder value.
Senator Voinovich. I'm sorry?
Ms. Nappier. I said, based on the way you've described the
scenario, it wagtail erode shareholder value. You don't need to
be a rocket scientists to understand that. My concern is this,
that we need to have full, accurate disclosure of the climate
change as a risk. We're not getting that kind of information
from companies. We're asking companies not only to begin to
quantify the financial risk but to also take steps to come up
with plans that will help to mitigate that risk. And we want to
know that. We want to know what it's going to cost our company
in the long term and how it's going to impact shareholder
value. We don't have access to that information.
There was a carbon disclosure project that was completed a
while ago and surveyed 500 companies. Of the 500 companies that
responded to the survey, 80 percent say that they are aware
that climate change is a financial risk factor. But only 40
percent are doing anything about it. Only 40 percent are
beginning, they're taking steps to assess the risks,
financially, operationally, reputationally. Only 40 percent.
From my perspective, I want to know that. If what you're
saying is absolutely true, in terms of my portfolio companies,
like AEP, then that's vital information we need to make our
investment decisions. And we don't have that information today.
Senator Voinovich. If the 3-P legislation, the President's
Clear Skies legislation is passed, for sure you'll have
certainty about that area, which is uncertain today in terms of
most people's opinion. So that's, I would think, would be a
step forward.
Ms. Nappier. Yes, I believe the 4-P legislation establishes
a mandatory cap. But I'm not sure that that legislation speaks
to the right of shareholders to have clear and accurate
disclosure of information regarding a company's future health
as it relates to climate change. I'm not sure it does that.
Senator Voinovich. I think that's something that----
Ms. Nappier. Regulation does bring on uniformity and that's
good.
Senator Voinovich. The issue is you've got Dr. Thorning
here, you've got Mr. McGinnis, is the fact that that
information is available going to make a difference in terms
of, do you think, in terms of the price of shares of stock?
Ms. Thorning. I'd like to weigh in. I think we need to keep
our eye on the big picture, which is that addressing climate
change is going to take a global effort. Shareholders in the
U.S. cannot materially impact the growth in CO<INF>2</INF>
concentrations. We need a global approach that will help the
developing world where the growth is coming, slowly reduce
their greenhouse gas intensity. Greenhouse gas intensity is
falling in the U.S. If the Bush Administration plan is
implemented and if tax provisions are made more favorable for
pulling through the capital stock faster, we will be able to
meet the targets, and shareholder value will be enhanced.
As I pointed out earlier in my testimony there are many
uncertainties associated with adopting carbon caps, including
the fact that the targets will continually tighten. If we go
down that path, it's going to be very hard to get off of it.
Mr. McGinnis. I would just point out that while I'm
sympathetic to the argument that developing a price signal, and
institutional investors would like a price signal on what would
happen with carbon emissions, again without knowable
technologies and knowable costs and time tables, the price
signal is distorted. So we wouldn't get a very clear read on
what those costs would be. So it would create greater
uncertainty rather than less.
Senator Voinovich. Senator Carper?
Senator Carper. I want to revisit, and I'm sure we'll
revisit this one a lot, but the assertion that our chairman
made with respect to the cost of a 4-P bill versus that of a 3
pollutant bill. He mentioned 25 percent. I've not heard 25
percent, I've heard 3 percent. As we go forward, we'll have to
find out, which is it, 25 or 3 or something in between. Because
that's an important element here and an important factor in the
decision that's before us.
I do know this, that 25 percent of the greenhouse gases
created in the world today come from the United States. And I
do know this, that 40 percent of the greenhouse gases that
emanate in the United States come from our utility industries.
While we're looking for a global solution, and there's clearly
plenty of other sources of greenhouse gases around the world
other than just utilities, we as a nation are a significant
contributor, and the utility industry is a significant
contributor, too.
Mr. Brownstein, I just want to salute you and your utility
also, those whom you mentioned, the utilities that are
interested in trying to find a balanced approach to the
problems before us. You said if we only remember one thing from
what you said, leaving here today, you talked about balance.
Just re-emphasize for us the critical point, and I'm going to
ask Mr. Cogan to come back to a critical point that he would
have us keep in mind as we leave here today.
Mr. Brownstein. And I think the discussion that's been had
here this morning just in this last panel has illustrated that
very nicely. There's no question, Senator, that if carbon caps
are set in an unrealistic fashion, you're going to stress out
the industry and create more uncertainty, as opposed to create
less. That's one of the reasons why we think it's so important
that No. 1, we be realistic about what we can accomplish in the
near term, and No. 2, that we couple that with flexibility
mechanisms.
Certainly, if you set a carbon cap and you limit the
compliance ability just to within the industry, we're going to
find ourselves in trouble very quickly. But if you set a carbon
cap in such a way that it incentivizes utilities to go out and
find low cost reductions in other industrial sectors and even
around the world, I might add, our first wind turbine project
was in Chile. Because it made sense economically and also was
consistent with their developmental goals.
That if you incentivize through a cap program, you'll
discover those costs. With respect to our friend from Morgan
Stanley with whom we often do business, sometimes it's just a
question of where you set the bar and how you share information
between parties that give people confidence that there is a way
forward. That's what we mean by balance. I certainly don't want
to be in a position where we go forward and we make investments
in NOx and SO<INF>2</INF> and mercury technologies, put off the
climate debate for 10 years and find that we made a fundamental
error in how we viewed the overall picture.
Senator Carper. Thanks, Mr. Brownstein. Mr. Cogan?
Mr. Cogan. I would concur with everything Mr. Brownstein
said, Senator. Two additional points I would make. Several
references have been made during the course of this hearing,
one to the patchwork of current regulations that are in place,
and second to the question of uncertainty going forward. My
concern in the research that we do for institutional investors
is that neither of those issues, the patchwork of regulation or
the uncertainty, will go away under a 3-P bill.
There is a patchwork in place right now with respect to
carbon dioxide regulation. The vacuum in effect at the Federal
level is being filled by some States that are passing their own
legislation, regional air quality groups that are also looking
at this issue, and certainly at the international level with
the Kyoto Protocol and many countries that are implementing its
terms.
So there is a patchwork that these countries and companies
already have to deal with. That's not going to go away if there
isn't a Federal standard that's put in place.
And the uncertainty won't go away either. The concern is
that unless there's a dramatic change in the way the science of
this issue looks, and the trajectories of the emissions being
what they are, there's a misguided focus on the emissions
intensity of production. But we don't want to lose sight of the
fact of what the overall emissions trends are.
An analogy I might draw is to someone who has their
cholesterol checked, and an emissions intensity ratio is a
helpful piece of information if you know your HDL to LDL level.
That's a good piece of information to have. But you also want
your doctor to tell you what your overall cholesterol level is
and whether the trend is up, and whether you're in a level
where you're facing a greater risk of contracting heart
disease. We don't want to lose sight of the fact that overall
emissions in this country and in the world are continuing to
rise and that therefore, the risk of climate change compounds
going forward.
So the uncertainty will still be there in terms of
addressing this issue. The one certainty that we would have
with a 3-P bill is that we would be committing, as has been
said again by Senators in this committee, to the most
aggressive clean air initiative in history, very well
intentioned and I think broadly supported in this country, but
also very expensive. And the concern would be that as we get
down the road, committing these tens of billions of dollars, we
find that we're not going to be able to fully depreciate the
value of those investments because we find that the science and
the other concerns, the economic risks and opportunities posed
by climate change are so compelling that we have to shift in
midstream.
That's our concern. That's the fundamental uncertainty that
we feel could be addressed.
Senator Carper. Let me ask a question of Mr. McGinnis, and
I think probably Mr. Cogan as well. Do you find that investors
are shying away from the electric generating sector now due to
the uncertainty of environmental regulations?
Mr. McGinnis. It's hard, Senator Carper, to understand when
a stock price goes down what the specific ratio of rationale
was, what one investor chose as his motivation to sell versus
another to buy or more to sell for one reason or another. So
it's hard to pinpoint. But in general, the focus on destruction
of value in the merchant power sector has been from
overbuilding in places which don't require as much supply. So
environmental concerns from companies who have been focused on
new construction have not been as important as concerns like
access to financing and the spark spreads, or that is the
margins that they experience from making power from gas-fired
plants in certain regions to be robust.
So it's not been the prime driver of a lot of the issues
for the industry. There have been cases, and RG is an example
of a case which Ms. Nappier from Connecticut would be familiar
with, in which pollution control and environmental issues, and
NEG in New England, pollution control and environmental issues
are very much a part of the economics of some of their
investments. That has hurt those companies and that has hurt
their share prices.
Senator Carper. Mr. Cogan, do you want to take a shot at
that question, please?
Mr. Cogan. Yes, you have to think about the type of
institution that's holding the shares as well. The work that we
do is largely for institutional investors who are managing
pension, insurance and endowment assets. By definition, they
tend to be in these companies for the long term. The trend has
been toward index investing, and so you're in basically
whatever is in the index and you're not going to sell it.
Electric utilities are a vitally important part of that
index, as they are a vitally important part of our economy. So
therefore, the institutional investors have to look beyond kind
of the ebbs and the flows and the swings of this industry,
again to see where the long term trends are and where it may
head. That's why I continue to emphasize this need for a longer
term perspective, a 15 year perspective perhaps, as Mr.
Brownstein said.
The way I'd actually like to think of this issue in terms
of a governance perspective for corporations and shareholders
is that this issue presents a fundamental gap in governance
decisionmaking. A CEO of a company typically is in that
position for about three to 5 years and the investment planning
horizon that a CEO has tends to match that same time interval.
In the case of a long-lived asset like a power plant, the
investment planning horizon may look out 15 years. But the fact
is, the power plant itself will exist for perhaps 30 or 40
years, and then emissions from that power plant, the carbon
dioxide, will remain in the atmosphere for over 100 years. So
long after the CEO is retired, even long after the plant is
retired, there is the legacy of the emissions from that plant
that need to be addressed. This is the gap in governance
decisionmaking.
The way institutions can help close this gap is by
recognizing that they hold assets that are as long, they span
generations, they are intended to be in perpetuity if they're
for endowments and pensions. They have that long term interest
as well to see that the issues are addressed over the long term
to maintain not only the vitality of the industry but of the
economy as a whole, and the global environment as well.
Senator Carper. Your mention of the long term, long-lived
assets, let me just ask one last question for our State
Treasurer, Ms. Nappier. Chairman Voinovich suggested earlier
that Clear Skies will provide more certainty for the industry,
at least in certain respects. But it's my impression that
utilities invest on more like a 30 year time horizon. Do you
believe that investors would benefit from having carbon dioxide
on the table, given the length of these investments?
Ms. Napper. I'm not sure I understand your question.
Investors are long term. You invest for the long haul.
Senator Carper. Do you believe that investors would benefit
from having carbon dioxide on the table, given the length, sort
of the long term length of the investment cycle?
Ms. Nappier. When you say on the table, what do you mean by
that? Do you mean regulated? I believe that regulation is
inevitable. So if it's going to happen, then we should do it in
concert with everything else that's going on that could have an
impact on a company's long term health. So I'm very much
concerned, for instance, what it will do to a company if you
say today they have to do X, Y, Z and make these capital
commitments, and then 50 years down the road, all of a sudden,
the rules change. And they're incurring additional expenses,
unanticipated.
So we know that there is a need for more research and
development to quantify the financial risk exposure to a
company. And I would hate to have us move forward and just
regulate for the sake of regulating and then realize that we
have contributed immensely to the demise of an industry.
Senator Carper. Thank you very much.
Senator Voinovich. Thank you. I'd like to thank all the
witnesses for coming today. I thought this was a very
interesting hearing, and certainly there's a difference of
opinion between the witnesses here today. Thank you very much.
The meeting is adjourned.
[Whereupon, at 12:40 p.m., the subcommittee was adjourned,
to reconvene at the call of the Chair.]
[Additional statements submitted for the record follow:]
Statement of Dr. Randall Kroszner, Acting Chairman, Council of Economic
Advisors
Mr. Chairman, and members of the committee, I am pleased to appear
before you this morning to discuss the Clear Skies Act of 2003. At this
time, it is valuable to pause and reflect on this piece of landmark
legislation. Strict enforcement of environmental rules can be dated as
early as 1306-when a man was allegedly executed for burning coal in
London. In the United States, concern for air quality dates back to the
mid-nineteenth century, when many municipalities issued smoke
ordinances. The responsibility of regulating air polluters rested
almost exclusively with States and localities until 1970. The early
1970's marked an unprecedented increase in environmental awareness.
During these years, the Federal Government began to take a more active
role in environmental regulation with passage of the National
Environmental Policy Act and the Clean Air Act. Later in the 1970's,
the Clean Air Act Amendments of 1977 modified these air quality
regulations.
One common thread over time has been that the United States' air
quality regulatory policy, indeed environmental regulation in general,
typically relies on command-and-control regulation. This type of
regulation generally mandates technologies or processes, does not take
advantage of the power of markets and is, therefore, by its very nature
more expensive and less efficient than is necessary.
In contrast, the Bush Administration has crafted an initiative that
will clean our air using a proven, market-based method. Announced on
February 14, 2002, the Clear Skies Act would be the most significant
and aggressive step America has ever taken, if enacted, to cut power
plant emissions of three harmful pollutants sulfur dioxide, nitrogen
oxide, and mercury. The proposal, which builds upon the highly
successful 1990 acid rain trading program, will cut emissions by
approximately 70 percent over the next 16 years.
Clear Skies employs a dynamic approach to regulation that mandates
specific emission reduction caps while providing managers with the
flexibility to reduce emissions in the most efficient and least costly
manner possible. Through a market-based cap and trade program, Federal
emissions limits, or caps, are set and emissions permits are
distributed to electricity generators. Managers then have the advantage
to determine the most efficient means of action whether it is the sale
or purchase of unused allowances or banking of credits for later use.
Clear Skies provides regulatory certainty and lays out the timeframes
necessary for managers to design a cost-effective strategy tailored to
both their current budgets and their future plans. With this structure,
we uphold a principal feature of the President's initiative improving
air quality more cost-effectively so that Americans can continue to
rely on clean and affordable electricity.
To improve air quality, Clear Skies will achieve faster reductions
than the current Clean Air Act by creating incentives for
``overcompliance'' and innovation power plants that develop means to
reduce pollution more than or earlier than required can generate and
sell extra credits. The Clear Skies Act will improve human health,
visibility, and diverse range of ecosystems by reducing emissions and
deposition of NOx, SO<INF>2</INF>, and mercury. In short, Clear Skies
will result in dramatic progress toward solving our nation's persistent
air quality problems.
At What Cost?
As you are well aware, a crucial element of any regulatory policy
is not only recognition of the benefits received from emissions
reductions, but also the resource costs associated with the policy.
These resource costs, it must be emphasized, are ultimately borne by
citizens, whether stockholders of companies making the reductions or
consumers, or both. Therefore, the Administration takes the economic
modeling of Clear Skies quite seriously. In this respect, over the past
several years we have gained a better understanding of the costs to
abate NOx and SO<INF>2</INF>. Yet, our understanding of the removal
costs associated with mercury is in a nascent stage.
The goal of Clear Skies is to reduce mercury emissions by
approximately 70 percent from current levels by 2018 with an interim
cap reducing emissions by approximately 50 percent by 2010. That is,
mercury emissions would be reduced from current levels of approximately
48 tons to 15 tons in 2018 with an interim cap of 26 tons in 2010.
Consistent with the principal of improving air quality cost-
effectively, Clear Skies is designed to meet the Clean Air Act goal of
reducing mercury with a trading program that is more cost-effective
than the program currently required by the Clean Air Act. The
interrelationship of cap levels for NOx, SO<INF>2</INF>, and mercury is
also a key feature of Clear Skies for providing regulatory certainty,
flexible capital planning cycles, and the co-benefit of mercury
reductions from NOx and SO<INF>2</INF> emission controls.
The Administration has been examining, among other things, the
total resource cost of achieving the mercury reductions required under
Clear Skies, the marginal cost of mercury removal, and the level of
mercury co-benefits that could be expected from the NOx and
SO<INF>2</INF> limits in Clear Skies. We have also addressed what
additional mechanisms and technologies will be needed to meet the 2010
mercury cap, using different assumptions and models. Major assumptions
in our models have been extensively reviewed and, if necessary, updated
over the past several months.
Before I share our latest results with you, I should highlight that
any modeling of the effectiveness of mercury control technology is
uncertain since mercury is not currently regulated in the power sector.
Current modeling assumptions for mercury are based on data collected
during the Environmental Protection Agency's (EPA) Mercury Information
Collection Request (ICR), pilot-scale testing, and some full-scale
testing. Because the data set we are working with is evolving,
uncertainties exist in how to interpret the data. For example,
emissions test data collected for EPA's ICR often reflect a large
variation in mercury reduction on units with identical emissions
controls and coal type burned. These differences most likely were
associated with the operation of the control equipment, but additional
testing continues to be conducted to understand these differences.
In general, there is agreement that selective catalytic reduction
(SCR) technology provides enhancement of mercury reduction for
bituminous coals. For subbituminous coal, however, there is some
disagreement on whether SCR technology also provides this enhancement
of mercury reduction. With only one set of test data on a
subbituminous-burning unit currently available and more tests currently
scheduled, this issue continues to be unclear, but more work is being
done. For one of the most common coal plant configurations, a plant
with a cold-side electrostatic precipitator for particulate control,
the Energy Information Administration (EIA) and EPA agree that adding a
SCR for NOx control and a scrubber for SO<INF>2</INF> control will
result in 90 percent of the mercury being removed from bituminous
coals. For subbituminous coals, however, the assumed percent removed
ranges from 27 percent for EIA to 66 percent for EPA. There is an
ongoing dynamic research process sponsored by EPA, the Department of
Energy (DOE), the Electric Power Research Institute (EPRI), and vendors
specifically aimed at furthering our understanding of mercury control,
with new data being made available on a continuous basis.
With these uncertainties in mind, I will briefly highlight some of
the empirical estimates of interest. As you may recall, the first phase
mercury reduction cap in Clear Skies is designed to take advantage of
the interrelationship of NOx, SO<INF>2</INF>, and mercury emissions.
More specifically, in addition to considering economic consequences and
benefits of this multi-emission approach, we relied on an estimate of
mercury removal achieved through installation of NOx and SO<INF>2</INF>
controls (SCR and scrubbers, respectively). This removal estimate is
commonly termed ``co-benefits.''
Concerning our updated empirical estimate of co-benefits, when the
NOx and SO<INF>2</INF> limits in Clear Skies are modeled without a
mercury cap (i.e., without a market signal promoting mercury removal),
estimates of annual mercury emissions in 2010 after installation of NOx
and SO<INF>2</INF> controls vary between 34 tons and 46 tons. An
important point to understand in this context is that the mercury
emissions remaining after installation of NOx and SO<INF>2</INF>
controls are most sensitive to assumptions regarding emission
modification factors, or EMFs, which is the amount of mercury removal
assumed when particular combinations of NOx and SO<INF>2</INF> controls
are installed. As discussed earlier, mercury reduction is dependent on
coal type burned as well as the existing particulate matter, and NOx,
and SO<INF>2</INF> control devices. For example, in the
Administration's modeling, we assumed that a bituminous-burning unit
with a SCR and wet scrubber can achieve 90 percent mercury removal.
Other key assumptions including electricity demand growth, natural gas
prices, and coal distribution patterns and prices, however, have not in
isolation materially changed projected 2010 mercury emission levels.
While differences exist in this ``co-benefit'' figure, the
Administration estimates the incremental costs of complying with the
2010 cap to be $650 million to $700 million per year. A key feature of
understanding this cost is the safety valve mechanism in Clear Skies.
This safety valve sets a maximum price of $35,000 per pound. Reducing
mercury emissions to the level at which the ``safety valve'' would be
activated between 27 tons and 30 tons is projected to cost between $650
million and $700 million in 2010. These costs reflect some units adding
NOx and SO<INF>2</INF> controls to enhance mercury reductions, the
addition of supplemental fabric filters with activated carbon injection
(ACI) (approximately 6 GW of about 300 GW of coal-fired generation),
and fuel switching between coal types. Little fuel switching to natural
gas is projected as a result of the incremental costs of meeting the 26
ton cap.
In sum, the President's Clear Skies legislation calls for a 70
percent reduction in power plant emissions of NOx, SOx and mercury in
the next 15 years. This legislation will meet the required health-based
standards laid out under the Clean Air Act--but it will achieve those
results sooner than required and at a much lower cost to consumers. We
look forward to working with the committee and Congress to create a
market-based system that will provide early reductions and affordable
energy prices for consumers.
Thank you, Mr. Chairman. I look forward to answering any questions
you or the members of the committee may have.
__________
Statement of Dr. Larry Monroe, Program Manager of Pollution Control
Research on Behalf of the Southern Company and Edison Electric
Institute
My name is Larry S. Monroe and I am the Program Manager of
Pollution Control Research for Southern Company. Southern Company is a
super regional energy company serving customers in Alabama, Florida,
Georgia, and Mississippi. Southern Company is the second largest user
of coal in the utility industry with some 21,626 megawatts of coal-
fired generating capacity. I hold a Ph.D. in Chemical Engineering from
MIT, and have been involved in research on pollution control for coal-
based power plants for over 20 years in university, not-for-profit
research institute, and corporate settings. At Southern Company, I
manage a research group that evaluates, develops, demonstrates, and
troubleshoots technologies to control particulates, SO<INF>2</INF>,
NOx, and hazardous air pollutants, including mercury, from fossil-fired
power plants.
For the last 2 years, I have been engaged in the national effort to
develop technologies to control mercury emissions from coal-fired power
plants, resulting from EPA's decision in December 2000 to develop
Maximum Available Control Technology (MACT) mercury regulations for
coal plants. I serve as the utility co-chairperson of the EPRI program
tasked with developing and evaluating mercury control technologies. I
have also directed Southern Company's efforts, along with our partners
including other utilities, EPRI, the Department of Energy, and the
Environmental Protection Agency, in an attempt to develop cost-
effective controls of utility mercury emissions.
I have been representing Southern Company and the industry on the
Utility MACT Working Group, a subcommittee formed under the Clean Air
Act Advisory Committee to provide advice to the Environmental
Protection Agency. As a member of the MACT Working group, I have been
intimately involved in the discussions with all of the stakeholders
including the environmental community, the State/local/tribal
regulatory agencies, and the industry stakeholders on the form of the
regulation and its impacts on the industry and the price of
electricity. As a part of this effort, I have been the leader of the
industry stakeholders on advising EPA on our view of the performance
and cost of the available mercury control technologies.
Working with EPRI, DOE, and EPA, Southern Company is one of the
leading utilities in the national effort to develop mercury controls.
We hosted the first full-scale power plant testing of mercury control
ever performed in the United States, and are just starting a long-term
follow-on test at the same site. Southern has also established a unique
program to explore the fundamentals of mercury chemistry in coal power
plant flue gas, partnering with EPA, TVA, EPRI, and several other
utilities.
Today I am also testifying on behalf of the Edison Electric
Institute (EEI). EEI is the association of U.S. shareholder-owned
electric companies, international affiliates and industry associates
worldwide. EEI's U.S. members serve more than 90 percent of all
customers served by the shareholder-owned segment of the industry,
generate approximately three-quarters of all of the electricity
generated by electric companies in the country, and serve about 70
percent of all ultimate customers in the Nation.
State of Technology
The state of technology development for control of mercury
emissions from coal-fired power plants is very much in its infancy.
Some early efforts at measuring the mercury emissions from power plants
were attempted in the mid-1990's, but the sampling techniques used were
not adequate, and much of that data is questionable. The mercury
content in typical coal-fired power plant flue gas is very low,
measured at the parts per trillion level. A good analogy that describes
the low concentration of mercury in coal-fired power plant flue gas is
to imagine a pipe, one foot in diameter, built from the earth to the
moon. If this pipe, all 238,000 miles long, were to be filled with
coal-fired power plant flue gas, and the mercury all magically brought
to one end, it would only take up the first 18 inches of this pipe. If
we compare the mercury in coal-fired power plant flue gas to the other
criteria pollutants (e.g., particulates, NOx, and SO<INF>2</INF>) you
find that the mercury is one million times less concentrated than those
other species. The low concentrations of mercury, along with the
propensity of mercury to react in the sampling equipment, contribute to
the difficulties in accurately measuring and controlling mercury
emissions at cost effective levels.
The state of knowledge of mercury chemistry and mercury emissions
from power plants has been so scarce that, in 1999, the Environmental
Protection Agency (EPA) required all power plants to sample their coal
supply and test for mercury content, and required a selected number of
power plants to sample for the different mercury species before and
after the flue gas entered existing pollution control devices. Southern
Company participated in that effort by tracking every coal to every one
of our power plants and further by sampling two of our plants for
mercury species and emissions. Unfortunately, this EPA Information
Collection Request (ICR) data base, while suffering from some flaws in
data collection and power plant selection, remains the best publicly
available data base of mercury emissions, with and without controls,
and of mercury chemistry for U.S. power plants.
There are currently no commercial technologies that are available
for controlling mercury from coal-fired power plants. That is, there
are no vendors that are offering process systems that are supported by
guarantees from the vendor for mercury control performance under all
the conditions that an ordinary power plant is expected to encounter
over the course of normal operating conditions and timelines. Of
course, there are vendors that will offer their best guess at how a
particular technology will perform, but the risk of non-performance
rests with the utility. The reliance on vendor warranties is standard
practice within the utility industry, and the inability of the vendors
to issue guarantees is indicative of the pre-commercial status of all
mercury control technologies.
The most promising two technologies for mercury control in power
plants are co-control by flue gas desulphurization (FGD) processes and
the use of activated carbon injection (ACI) processes. To understand
the co-control of mercury by FGD processes and the possibility of
increased mercury control by NOx control processes, namely selective
catalytic reduction (SCR) systems, a basic understanding of mercury
chemistry is needed. First, coal is no different than any other solid
material dug from the earth's crust when it comes to the mercury
content. In other words, coal is not enriched in mercury compared to
ordinary rocks. The mercury in coal is there mainly as a sulfide
compound, at a concentration that averages 50 parts per billion by
weight. These sulfur-mercury compounds are the most common form of
mercury found in nature and they tend to be very stable solids, only
dissolved by a mixture of strong acids. Most everyone is familiar with
mercury, the metal that is a liquid at room temperature and used widely
in thermometers and blood pressure instruments seen in a physician's
office.
It is not a surprise that a metal that is liquid at room
temperature would boil at much lower temperatures than ordinary metals,
and mercury boils at only 674 F. Similarly, when coal burns in a
utility boiler, mercury in the coal vaporizes and produces the vapor of
the metal in the high temperature zones of the flame. This form of
mercury is commonly referred to as elemental mercury, meaning that it
exists in a form that is not combined with any other element. It is
also known as ``mercury zero,'' a reference to the chemist's shorthand
of referring to the electron state of a pure element as zero, or Hg0.
As the temperature of the coal flue gas is cooled by the process of
making and superheating steam, the elemental mercury vapor can react
with other elements to form compounds. Our best knowledge of mercury
chemistry suggests that mercury vapor can react with either chlorine or
oxygen to produce mercury chloride (HgCl2) or mercury oxide (HgO).
Since the electronic state of the mercury atom is now ``plus two,''
this form is sometimes called ``mercury two,'' ionic mercury, or
oxidized mercury. These are all equivalent terms that describe the
chemical state of the mercury. Finally, either of these two forms of
mercury, the elemental or the ionic, can attach to solid particles,
either fly ash or partially burned coal particles, and is typically
referred to as ``particulate mercury,'' which is a physical description
of the mercury form. To summarize, we generally classify the mercury in
coal flue gas as being one of three forms: elemental, ionic, or
particulate.
The proportions of the three chemical forms of mercury have a great
influence over the behavior of the mercury in the flue gas in pollution
control processes. The particulate form of mercury is the easiest form
to remove, with high efficiency capture being normal along with the
coal ash in electrostatic precipitators (ESPs) or bag houses.
Unfortunately, in most power plants, the fraction of mercury contained
in the particulate form is only a minor amount of the total mercury.
Flue Gas Desulphurization (FGD)
The most common method to remove sulfur dioxide (SO<INF>2</INF>)
from coal-fired power plant flue gas is a wet scrubber. This device is
a large tower, where the flue gas enters the tower near the bottom and
flows upward, exiting through the top. When the flue gas is flowing,
hundreds of nozzles spray a mixture of powdered limestone and water.
The flue gas essentially flows up through a rain storm of these
limestone-water droplets. Since SO<INF>2</INF> is an acid, it reacts
with the alkaline limestone solids and is neutralized.
The acid and base chemistry is so fast that the performance of the
wet scrubber is dependent on the mixing between the flue gas and the
droplets. Therefore, it is necessary to use multiple, large pumps and a
large number of nozzles to produce the small droplets needed. The
combined limestone-SO<INF>2</INF> product from the scrubber is
typically calcium sulfate, better known as gypsum the white powder
found inside wallboard (also called sheetrock). Gypsum is a naturally
occurring compound, mined both for fertilizer and wallboard.
In this common FGD process, the wet limestone scrubber, the form of
the mercury in the flue gas entering the scrubber appears to be the
most important factor in the efficiency of mercury capture. The ionic
form of mercury, that which has reacted with oxygen or chlorine, tends
to be soluble in water and is therefore captured along with the
SO<INF>2</INF>, while the elemental mercury, being insoluble in water,
passes through most of these processes. Therefore, our best
understanding of the co-control of mercury with SO<INF>2</INF> control
processes suggests that the efficiency of mercury capture by these
processes is related to the amount of the mercury that has converted
from the elemental form to the ionic form. Anything that would help
convert the elemental mercury to the ionic form will presumably
increase the overall mercury control in plants equipped with wet
scrubbers. (NOx control processes using selective catalytic reduction
systems appear under some circumstances, and with some coals, to
increase the amount of ionic mercury, and this will be discussed
later.)
The biggest influence on the eventual form of mercury in the flue
gas, and the apparent subsequent capture efficiency, appears to be the
chlorine content of the coal. Coals with higher chlorine levels, when
burned in a power plant, produce flue gas that is typically higher in
the ionic form, the form which is most easily captured in an
SO<INF>2</INF> scrubber system. In general, the domestic coals found
east of the Mississippi River tend to be much higher in chlorine
content than the coals found in the West.
More specifically, the rank of the coal tends to be a good
predictor of chlorine content. Coal rank is an indicator of the age of
the coal and there are four major classifications of coal rank, listed
in the order of high rank (or older coal) to low rank (or younger
coal): anthracite, bituminous, sub bituminous, and lignite. Most coal
found in the Eastern U.S. is bituminous coal, although there are some
lignite deposits found in the Alabama-Mississippi coastal plain. These
lignite reserves are not important to the coal-fired utility industry,
however. Conversely, most of the coal found in the Western U.S.,
including Texas, is either sub bituminous or lignite rank coal. The
exception in the West is some bituminous coal found in Colorado
extending into New Mexico. All of the coals in the Western U.S.,
including the Western bituminous coals, are characterized by low
chlorine contents, while the bituminous coals in the Eastern U.S. have
much higher chlorine contents. Therefore, the expected amount of ionic
mercury and consequently the expected capture in a scrubber will be
much higher for coals from the Eastern U.S. than from those in the
Western U.S.
Typical coal-fired power plant flue gas produced from combustion of
the bituminous coals found in the Eastern U.S. would contain the
following proportions of the mercury species: 60 percent ionic mercury,
38 percent elemental mercury, and 2 percent particulate mercury. The
particulate mercury would be removed in the power plant's electrostatic
precipitator. We would expect the scrubber to remove 90 to 95 percent
of the ionic mercury, and none of the elemental mercury. The overall
mercury removal in this simple example would then be 56 percent (90
percent of the ionic and nearly 100 percent of the particulate mercury
removed). This example is in good agreement with recent testing where,
at three bituminous-fired power plants studied by EPRI, the FGD system
removed 43 to 51 percent of the mercury.
However, most of the coals from the Western U.S. when used in a
power plant produce much less ionic mercury, with typical estimates of:
25 percent ionic, 74 percent elemental, and less than 1 percent
particulate. A scrubber on this power plant would then only be expected
to remove 90 percent of the ionic and the electrostatic precipitator or
bag house to remove nearly 100 percent of the particulate mercury.
Therefore, the total mercury removal would be only 23.5 percent. The
ICR data base shows that power plants burning low rank coals ranged
from near zero to 38 percent mercury capture without wet scrubbers, and
11 to 56 percent on those plants with scrubbers.
A problem with capturing mercury in wet FGD scrubbers has been
discovered through analysis of the EPA Information Collection Request
data base. In some power plants that were tested for mercury species
and also had wet SO<INF>2</INF> scrubbers, the apparent high capture of
ionic mercury was offset by an increase in the amount of elemental
mercury as the flue gas moved through the scrubber. So, while the ionic
mercury appeared to be captured at efficiencies approaching 95 percent,
some of the ionic mercury, after being captured in the scrubber, was
converted back to the elemental form, which evaporated from the
scrubber and was then emitted as elemental mercury.
An example may help explain the effect. Say that, before the
scrubber, there are 10 micrograms (one millionth of a gram or 2
billionth's of a pound) of mercury in one cubic meter (about 35 cubic
feet) of flue gas. Furthermore, let's say that 60 percent of that is
ionic and the balance is elemental, or 6 micrograms per cubic meter
ionic and 4 micrograms per cubic meter of elemental mercury. In a power
plant that shows this mercury release phenomena, we might see less than
0.1 microgram per cubic meter of ionic mercury at the stack exit, an
apparent capture of 98.3 percent of the ionic mercury. But, we see the
stack exit containing maybe 5.5 micrograms per cubic meter of elemental
mercury, an increase of 37.5 percent.
The elemental mercury is not being captured but is actually
increasing across the scrubber. When looking at the total mercury, the
10 micrograms per cubic meter at the scrubber inlet is reduced to only
5.6 micrograms per cubic meter (5.5 elemental and 0.1 ionic) at the
stack, a total reduction of only 44 percent. The only logical
explanation to explain these example numbers is that some of the
captured ionic mercury is being re-released as elemental mercury. In
this case, the ionic mercury is only being captured at 73 percent, when
the re-released mercury is included.
This scrubber mercury re-release is not well understood at this
point. An analysis by EPRI notes a correlation between an increase in
the amount of fly ash captured in the scrubber and an increase in the
mercury re-release. Further work by EPRI on a bench-scale scrubber
shows that this phenomenon is transient, and it is not easy to predict
when it will occur. Additionally, private testing by Southern Company
at our DOE-sponsored flue gas scrubber at Georgia Power's Plant Yates,
south of Atlanta, has shown that this effect is present at some times,
and not present at others. The significance of this effect is that the
overall capture of mercury by a wet scrubber may be less over time than
a short test period would indicate. Further research of this phenomenon
is needed.
Most of the previous discussion assumes that the FGD process used
is the wet limestone, forced-oxidation scrubber. Another process for
SO<INF>2</INF> control, used widely for low sulfur Western coals, is a
lime-based spray dryer followed by a bag house that collects both the
reacted lime along with all of the coal ash. The EPA Information
Collection Request testing in 1999 indicates that this spray dryer-bag
house FGD process may give very high mercury removals with bituminous
coals. However, this is a rare application of this technology, and
unfortunately is not widely applicable to all bituminous coal
applications. The technology is only effective for SO<INF>2</INF>
control for low sulfur coals, is more expensive than the alternatives,
and creates a large waste stream that has to be carefully handled for
disposal. While this approach may be used in a few power plants burning
Eastern bituminous coal for combined SO<INF>2</INF> and mercury
control, I do not expect it to be very widely selected because of these
limitations.
Ironically, the best application of this FGD process is for Western
coals, but there it appears to make the mercury control worse than just
particulate control alone. That is, the use of a spray dryer-bag house
system on most low rank coals (sub bituminous and lignite) is normally
the best engineering and low-cost FGD solution for plants burning these
coals for SO<INF>2</INF> control, but the evidence suggests that it may
worsen the mercury collection efficiency as compared to the use of a
bag house alone. For example, EPA states that sub bituminous coal
plants in the ICR data base with only bag houses average 72 percent
mercury control, while those with a bag house and a spray dryer for
SO<INF>2</INF> control average only 24 percent mercury removal.
Various technologies are being investigated to attempt to further
oxidize elemental mercury to ensure higher removal in a FGD system.
Chemical injection, plasma discharges, and dedicated catalysts are all
being tested and developed. These approaches are all under development,
and only slow progress is being made.
Selective Catalytic and Non-Catalytic Reduction (SCR & SNCR) NOx
Controls
One of the most intriguing possibilities is the ability of NOx
control selective catalytic reduction (SCR) systems to enhance the
amount of ionic mercury in the flue gas. A report on research done by a
large German utility company in the early 1990's claims that the
catalyst used in a SCR system was effective in converting a high
fraction of the elemental mercury to the ionic form, which was then
captured in FGD equipment. The German claim was that the SCR catalyst
changed the chlorine chemistry, making it more likely to convert
elemental mercury to ionic mercury.
Based on this German research, EPA originally assumed that any
power plant equipped with a SCR and FGD, burning any type of coal,
would see: (1) almost all of the elemental mercury converted to ionic;
(2) the ionic mercury captured in a scrubber in a high proportion; and
(3) no mercury re-released from the FGD process all adding up to an
estimate of an overall 95 percent reduction in mercury emissions from
those plants. A 95 percent mercury capture would require that the SCR
catalyst be 97.5 percent effective in converting elemental to ionic
mercury. Furthermore, the FGD system would have to be 97.5 percent
effective in removing the ionic mercury that is, not only does the
scrubber have to perform at least as well on mercury as the
SO<INF>2</INF> (even though the mercury is one-millionth times as
concentrated), but no re-release of mercury can occur. EPA's
assumptions were highly optimistic and recent power plant testing has
shown these assumptions are not always true.
SCR catalyst degrades over time in its performance to reduce NOx,
requiring replacement every three to 5 years. The catalytic activity is
reduced by exposure to flue gas, either by poisoning of the catalyst
active ingredient from the chemicals in the flue gas or by physical
plugging of the catalyst surface by ash particles. It is not known, at
present, how this catalyst deactivation affects its ability to oxidize
mercury. The mercury oxidation of the catalyst could be reduced at the
same rate as the NOx reduction, or it might be slower or faster. EPRI
testing has only looked at two power plants and only in two ozone
seasons (May 1 to September 30). So we have limited information, both
in the number of plants tested and the time between tests. Therefore,
any estimate of the long-term potential for co-benefits of SCR and FGD
for mercury reductions must consider the possibility of catalyst aging
and the subsequent potential loss in mercury oxidation.
For the lower rank coals, and particularly those found in the
Western U.S., this SCR mercury oxidation does not appear to occur.
Given the German claim of the effect being based on higher chlorine
content, this is not much of a surprise. The low rank coals are
typically low in chlorine, and to make matters worse, the ash of these
coals is alkaline, so that whatever chlorine that is present, being an
acid, is usually neutralized by the fly ash before it can ever reach
the SCR catalyst. Testing in an EPRI program sponsored by utilities
(including Southern Company) along with the Department of Energy (DOE)
and the EPA has shown that mercury reduction in low rank coals do not
seem to be helped by the addition of a SCR system. Since the majority
of the mercury in the flue gases from these coals in the elemental
state, the addition of any type of FGD system does not appear to
control mercury emissions to any significant degree. In other words,
for low rank coals (typically Western U.S. coals), we do see modest
benefits on mercury control by adding wet FGD systems, but do not see
any mercury co-benefits from adding an SCR to the power plants burning
these coals. EPA has also seen the results of the testing, and we think
that they have revised their assumptions about co-benefits for lignite
and sub bituminous coal to reflect this new knowledge, that is, there
are only modest mercury reductions based on co-benefits of NOx and
SO<INF>2</INF> reductions for these coals.
At the beginning of the MACT development process, EPA had assumed
that selective non-catalytic reduction (SNCR) systems would contribute
to increased mercury removal, and explicitly had assumptions about its
performance in their models. SNCR uses ammonia injection at elevated
temperatures (1900-2400 F) to reduce NOx without the use of a catalyst.
Two years of testing have shown that this NOx reduction technology has
no influence on mercury control in any plant with any coal rank.
Finally, we think that the Agency has conceded this point and we hope
that they no longer count SNCR as having any influence on mercury
control.
Summarizing the current state of knowledge of controlling mercury
via co-benefits of SO<INF>2</INF> and NOx reductions, there are only a
handful of power plants that have been tested for short time periods.
Given this limited amount of data, we think that for bituminous coals
the mercury reductions with a SCR and FGD will probably be between 80-
90 percent for the best case, and that for sub bituminous and lignite
coals the reduction will be a modest 20 percent. These estimates are
optimistic taking into account the previous discussions of catalyst
aging in SCR systems and mercury re-release for FGD systems, and are
likely to be reduced even further in the future. We think that EPA is
currently using an estimate of 90 percent for bituminous coals and
something less than 90 percent for lignite and sub bituminous.
Activated Carbon Injection
The second near-commercial technology for mercury control from
coal-fired power plants is activated carbon injection (ACI). Activated
carbon is a specially prepared product of coal or biomass that is able
to adsorb many chemicals from gases or liquids. One of the primary uses
of activated carbon is the treatment of drinking water. Water filtering
systems sold for home use in home improvement stores are typically
cartridge systems that include activated carbon as part of the filter.
Activated carbon is being used currently to remove mercury from the
flue gases from municipal, medical, and hazardous waste incinerators.
In those applications, activated carbon can routinely collect over 90
percent of the mercury from the flue gas. However, the mercury
concentrations in the stack after the activated carbon treatment in
these incinerators are typically higher than that found in coal flue
gas before treatment. That is, the amount of mercury in every cubic
foot of incinerator stack gases after the control system using
activated carbon is typically 5 to 10 times the amount in untreated
coal flue gases from power plants. Another way to look at a comparison
between incinerators and power plants is that most every power plant
would meet the incinerator mercury regulations without any control
technologies. Simply, incinerator mercury control by activated carbon
stops where power plant flue gases begin. Therefore, it is not useful
to use the experience of activated carbon in incinerators to inform the
debate on its use in power plants.
The design of activated carbon injection for mercury control relies
upon the existing equipment used to remove fly ash from the flue gas to
also remove the added activated carbon. There are many side issues
associated with the use of activated carbon in this mercury process
approach, including contamination of the fly ash with carbon and
interruption of the normal fly ash control by the added load of
activated carbon. The injection ahead of electrostatic precipitators,
which are in use by about 80 percent of the U.S. coal power plants, may
require large amounts of activated carbon to achieve reasonable mercury
control. The carbon will contaminate the fly ash making it unusable for
recycling and may threaten the performance of the electrostatic
precipitator for its intended use of removing fly ash. Injection of
activated carbon in a bag house will not need as much activated carbon
as an electrostatic precipitator, but will also contaminate the fly
ash.
There have been only a handful of tests on the use of activated
carbon to control mercury from coal-fired power plants. The very first
test at full-scale in the United States was performed at a Southern
Company power plant, Alabama Power's E.C. Gaston Unit 3, located in
Wilsonville, Alabama. This was the first in a series of four power
plant tests in a sequence performed by ADA-Environmental Solutions of
Littleton, Colorado. The test program was sponsored by DOE's National
Energy Technology Laboratory (NETL) with significant co-funding by
participating utilities and vendors. All of these four sites are
somewhat unique, and unfortunately do not well represent the nation's
power plant fleet.
Gaston Unit 3 is one of only four power plants in the U.S. that
have an advanced particulate control system that consists of a small
bag house installed downstream of the existing electrostatic
precipitator. This arrangement, known as COHPACTM, is a patented EPRI
invention. The activated carbon can be injected between the
electrostatic precipitator and the bag house. The electrostatic
precipitator collects over 95 percent of the fly ash, while the bag
house collects the remainder of the ash and the activated carbon. This
approach to activated carbon injection avoids contamination of the fly
ash and does not jeopardize the operation of the electrostatic
precipitator with additional carbon loading. The bag house is a large
filter, which has hundreds of fabric bags that separate the solid ash
and carbon from the flue gases, much like the paper bag in a household
vacuum cleaner. Because the activated carbon can sit on the surface of
the bags for several minutes and see a substantial amount of flue gas,
it can effectively collect more mercury from the flue gas than
injection into an electrostatic precipitator.
The activated carbon injection testing at Gaston, which burns an
Eastern U.S. bituminous coal, ended with a 7-day test of mercury
control, where the average mercury reduction over that time period was
just under 80 percent, with a high of over 90 percent and a low of only
36 percent. This was a short-term test and probably does not reflect
the ability of this system to always perform at this level. We found in
this testing that the bag house at Gaston is not big enough to
accommodate the amount of activated carbon needed to consistently
achieve 90 percent mercury control for even just 1 week of testing. The
testing was promising and DOE/NETL has funded a follow-on project that
will test the mercury control at this location for one calendar year.
This length of testing will allow a better estimate of the potential
mercury control from this technology over the course of that 1 year. We
are just starting this longer term testing, and the initial results
were presented at an international pollution control conference
sponsored by DOE, EPA, and EPRI just 2 weeks ago here in Washington.
The initial results are not encouraging we cannot repeat the
performance of the 7-day test performed in 2001. The electrostatic
precipitator ahead of the bag house at Gaston Unit 3 is not performing
as well as it was during the earlier testing, and we cannot inject much
activated carbon into this system without causing damage to the bag
house. Two conclusions can be drawn from the first few weeks of
operation of the long-term testing: (1) the bag house at this unit is
simply not big enough to handle both the fly ash and carbon loading
over all operating conditions, and (2) the 80 percent average mercury
control seen in the earlier 1 week test cannot be sustained over the
long term. It may be possible to achieve levels higher than 80 percent
in other power plants with this configuration, assuming that the
additional capital investment is made to build a large bag house.
Again, this is a test at a power plant burning Eastern bituminous coal.
The three other tests of full-scale mercury control using activated
carbon in the joint industry-DOE project all involve the injection of
activated carbon into the inlet of an electrostatic precipitator. The
first electrostatic precipitator injection test was performed at
Wisconsin Electric's (now We Energies) Pleasant Prairie Power Plant,
which burns a Western U.S. sub bituminous coal from the Powder River
Basin in Wyoming and Montana. This unit has a large electrostatic
precipitator that is likely to be able to handle the additional
particle loading from the activated carbon. The test that occurred over
one to 2 weeks was able to achieve a mercury control of between 60 and
70 percent, but notany higher, regardless of the amount of carbon
injected into the system. The logical conclusion from the testing seems
to indicate that there is a chemical limitation on the amount of
mercury control from low rank coals like lignite and sub bituminous,
and maybe for Western U.S. bituminous coals from Colorado and New
Mexico. It appears that, similar to the SCR oxidation of mercury, the
activated carbon needs sufficient chlorine in the flue gas to collect
the mercury. Again, this result was over a very limited time span test
and may not be repeatable over a yearlong period. Longer term testing
of this approach in several power plants needs to be performed before
any judgment of the mercury performance can be reliably made.
An additional consequence became clear during the test at We
Energies' Pleasant Prairie Power Plant. This site is able to sell all
of the fly ash it produces for recycling into concrete. The activated
carbon made the ash not usable for this purpose during the test period,
but also contaminated the ash for about 4 weeks after carbon injection
was discontinued. Southern Company declined a similar test at one of
our sub bituminous coal plants, due to the expense of lost ash sales
plus the added ash disposal costs.
The other two tests of activated carbon injection into
electrostatic precipitators for mercury control were both performed in
Massachusetts, at PG&E National Energy Group's Salem Harbor and Brayton
Point power plants. Salem Harbor is peculiar in that it produces a
large fraction of unburned coal particles that persist into the
electrostatic precipitator, possibly a result of the large amount of
South American coal being burned there. This high level of carbon
produced seems to remove a significant amount of mercury, with a
baseline removal ranging from 87 to 94 percent with one coal, but
dropping to 50 to 70 percent with a second coal, all even before
activated carbon injection. The activated carbon injection was able to
increase the mercury capture to over 90 percent. Of course, this
testing has shown that a change of coal supply can dramatically change
the mercury baseline performance and the subsequent increased capture
by activated carbon injection.
Brayton Point is also a peculiar arrangement with two electrostatic
precipitators in series. In the DOE test, activated carbon was injected
between the two electrostatic precipitators, much like the injection
between the ESP and bag house at the Gaston station. The baseline
mercury removal, that is, the removal before activated carbon injection
started, was 90.8 percent. This is very high as compared to historical
data from that unit that recorded baseline mercury removals of 29 to 75
percent. The results in the 10 days of testing suggest that, for short
periods, the injection of activated carbon can increase the mercury
removal from a baseline of 90.8 percent to 94.5 percent with the
addition of activated carbon (10 pounds carbon injected for every
million cubic feet of flue gas). Again, the short time of the test and
the potential change in behavior with a change in coal supply makes it
hard to extrapolate this performance much beyond the actual period of
testing.
All of the electrostatic precipitator tests of activated carbon
injection to date have involved relatively large, oversized equipment
where the additional burden of collecting the injected activated carbon
did not impact the operation, at least in the tests of under 2 weeks
duration. For the same mercury collection efficiency as a COHPACTM bag
house, the added carbon cost is substantial enough to justify the
capital investment to build the bag house.
Another potentially large problem with this technology is that the
supply of activated carbon is currently not sufficient to support any
significant use for utility mercury control. I have publicly stated
that, due to current uncertainties, Southern Company may use anywhere
between 500 tons per year to 100,000 tons per year of activated carbon.
The major U.S. manufacturer of activated carbon, Norit Americas, based
in Atlanta, Georgia, have told us that they could supply an additional
20,000 tons per year with their existing capacity. Without long-term
commitments from buyers, the activated carbon suppliers will very
likely not make the needed investments to ensure that a large demand
from the U.S. utility market could be met. In the 1970's, the activated
carbon industry built capacity in anticipation of clean water
regulations and those investments resulted in a severe price decrease
caused by oversupply, when the demand did not appear. The activated
carbon suppliers are not likely to make the same speculative capital
investments today. Add to this reluctance to invest ahead of demand the
fact that it will likely take at least 5 years to design, finance,
permit, and build activation carbon production facilities, and it
becomes apparent that, if activated carbon injection becomes the
technology of choice for power plant mercury control, the supply will
not be available at the beginning.
There may be foreign supplies of activated carbon. As discussed at
a recent conference, there may be about 50,000 to 60,000 tons per year
available from a major European supplier. Also, China has started
supplying activated carbon into the U.S. market, but initial experience
with this material has shown quality control problems with its
performance. All in all, there may be sufficient carbon available to
supply a small part of the industry with today's global supply, but
there is not enough supply for any major use across the Nation by the
utility industry.
In early modeling efforts by EPA on the performance of activated
carbon, the assumptions made about performance and the actual amount of
activated carbon were grossly optimistic. The Agency used some
estimates made by DOE in 1999, and the subsequent testing at full scale
power plants has demonstrated that the performance is not as good as
the earlier estimates. We think that the current set of performance and
cost numbers offered by the Utility Air Regulatory Group in the MACT
Working Group are the best estimate for mercury control processes using
activated carbon.
In summary, the limited testing of activated carbon injection for
power plant mercury control does not represent the average
configuration of the U.S. power plant fleet, and the short-term tests
that have taken place only represent what a well-controlled and well-
managed test period performance could be in other words, are likely to
be close to the best case. Additional testing at the Southern Company
plant has already shown that the earlier performance cannot be matched
at this moment. Certainly additional testing, including long-term tests
of at least 8 months are needed to understand what the actual
performance of activated carbon injection over longer times would be,
with the wide variety of coals in use today. At this moment, the DOE/
NETL is evaluating a number of proposals from utilities, vendors, and
research contractors to test activated carbon for longer periods of
time on a variety of plants, especially those that burn low rank coals.
With sufficient capital investment to build a COHPACTM bag house
large enough to handle both the fly ash and activated carbon, short-
term performance of 90 percent mercury removal with bituminous coals
may be possible, but, across the industry, an average removal of 80
percent is more likely to be achieved with today's technology. This
estimate is based on only one power plant, tested for only 7 days,
however. It appears that low rank coals, such as lignite and sub
bituminous coals, may have a limit of 60-70 percent mercury removal,
regardless of the amount of activated carbon used or whether a bag
house has been installed. Again, only one power plant has been tested
for less than 2 weeks to establish this estimate. Under certain
circumstances, activated carbon injection into a large ESP may be able
to get incremental mercury control, but only two power plants have been
tested for less than 2 weeks. Finally, the supply of activated carbon
is not sufficient today to accommodate a substantial demand from the
utility sector and it may take 5 years to bring new activated carbon
production facilities on line.
Other Technologies
There are other technologies that show some promise in controlling
mercury emissions from power plants, but they are all still research
projects and are nowhere close to commercialization. Some of the multi-
pollutant processes being developed do claim that mercury control is
also removed along with SO<INF>2</INF>, particulates, and NOx. While
this may be true, there are large questions about the costs,
reliability, and long-term performance of these technologies. Most of
these multi-pollutant processes make either fertilizer or acid chemical
feedstocks from the NOx and SO<INF>2</INF>, and the ability to sell
either of these waste streams in the future is questionable. The larger
the penetration of these technologies into the utility market, the more
of the byproducts that are produced, quickly over-saturating any
potential market.
Possible future technologies that are being researched include
capture of mercury by gold-plated surfaces, the use of chlorine
addition to low rank coals to increase the mercury oxidation, injection
of sulfur compounds to change the elemental and ionic mercury gases to
solid sulfides that can be captured in the existing particulate control
devices. Additionally, a large number of alternative sorbents to
replace activated carbon, either with a less costly material cost or
improved performance with less material injected, are under
development. Unfortunately, we cannot predict whether these efforts
will succeed, and we cannot base national energy policy on the hope
that something is invented in time to produce the perceived needed
level of mercury control.
Timing of Mercury Reductions
The timing of mercury reductions required, whether by regulations
under a MACT provision or by a legislative process, needs to take under
consideration both the state of knowledge about mercury control and the
ability of the nation's utility industry to install the required
controls. Already, in the installation of NOx controls for the 2003
summer ozone season, we have experienced some labor shortages and tight
supplies of steel, cranes, and auxiliary equipment such as fans, pumps,
electric motors, switchgear, etc. If mercury control proceeds under a
MACT regulation, every coal-fired power plant will have to meet the
stated emissions requirements, and depending on the technologies being
used, we expect shortages of steel, bag house bags, labor, and
auxiliary equipment, not to mention the activated carbon supply issues
discussed earlier. Southern Company estimates that the time required to
install mercury controls under MACT would be at least 7 years, and the
time needed for the additional NOx and SO<INF>2</INF> controls in Clear
Skies would take probably eight to 9 years.
Estimates of Benefits of Utility Mercury Reductions
EPRI and EPA are both engaged in research to attempt to predict the
net effect on human health from reductions in emissions from U.S. coal-
fired power plants. EPRI has just published their initial findings, and
we think that EPA is working on similar model predictions. In the EPRI
study, mercury deposition on the continental U.S. is predicted using a
global mercury source and deposition model. The results indicate that
the majority, around 70 percent, of the mercury falling on the U.S. is
from sources outside the U.S. Additionally, this study predicts that
U.S. utility emissions are estimated to contribute less than 8 percent
of the mercury depositing in the U.S. This result is significant,
because it indicates that reductions of mercury emissions from domestic
utility sources will have a limited response on the amount of mercury
depositing. In other words, since most of the mercury falling on the
U.S. comes from overseas, controlling domestic utility emissions can
have only a limited impact.
The EPRI study goes on to estimate the change in human exposure
from significant reductions in utility mercury reductions. The only
significant route of exposure to humans is through the consumption of
large fish, captured in the wild. By estimating the change in U.S.
deposition from reductions in utility emissions, the change in mercury
in aquatic systems, and subsequently in fish, can be found. Taking the
analysis one step further, EPRI has estimated the change in exposure to
humans in the U.S. from utility mercury reductions.
The EPRI study looked at mercury reductions in a Clear Skies Act
approach and in a mercury MACT regulation scenario. The results
indicate under the Clear Skies approach, in the year 2020, mercury
deposition in the continental U.S. would be reduced by an average of
1.5 percent, exposure of women of childbearing age to mercury would be
reduced by 0.5 percent, and the fraction of the population above the
reference dose for mercury would be reduced by only 0.064 percent. In
the MACT approach, also for the year 2020, mercury deposition would be
reduced by 1.2 percent, exposure of women of childbearing age to
mercury would be reduced by 0.4 percent, and the fraction of the
population above the reference dose would be reduced by 0.055 percent.
Since U.S. utility emissions are only a small contributor to mercury in
the environment, it is not surprising that significant reductions in
those emissions will not greatly affect human exposure. One significant
difference in the two approaches is that the present value incremental
cost for mercury controls by 2020 is estimated to be about $6 billion
for CSA and $19 billion for MACT.
Summary
There are no commercially available technologies for mercury
controls for coal-fired power plants. There are systems in use in the
waste incinerator industry, but the EPA requirements for mercury
control for incinerators allow emitted concentrations to be five to ten
times higher than uncontrolled coal power plant emissions. In an
engineering sense, the low concentrations mean that you have to work
that much harder to get each molecule of mercury. NOx and
SO<INF>2</INF> stack concentrations are one million times higher than
mercury, so you have to work one million times harder to collect
mercury as compared to either NOx or SO<INF>2</INF>.
There are two near-commercial mercury control technologies at
present: co-control by FGD systems, with possible beneficial mercury
chemical changes from SCR systems on plants burning bituminous coals,
and the injection of activated carbon into existing or new particulate
control devices, either ESPs or bag houses.
Plants burning bituminous coal from the Eastern U.S. which have
installed SCR systems and wet scrubbers are likely to have between 80
and 90 percent mercury control in the beginning. There are large
uncertainties about the potential adverse scrubber chemistry that could
re-release captured mercury and also about the extent of SCR catalytic
mercury oxidation over time, so it is likely that these estimates may
decrease as we learn more.
For low rank coals such as sub bituminous and lignite (along with
bituminous coal from the Western U.S.), the SCR systems do not appear
to have any beneficial effects on mercury chemistry, probably due to
the low chlorine content of the coals. Additionally, the addition of a
wet FGD scrubber system may increase mercury control slightly, say by
20 percent, but the addition of a spray-dryer FGD system may even
decrease the mercury removal as compared to the pre-FGD mercury removal
performance.
Activated carbon tests to date have been short, less than 2 weeks,
and have shown some promise, but also some difficulties. The only long-
term test that is being performed is at Southern Company's Plant
Gaston, and the year long test is just beginning. The limited data from
this one short test suggests that activated carbon injection into a
COHPACTM bag house installed at a plant burning bituminous coal may be
able to achieve short-term performance of 90 percent mercury removal,
but an average across a year is more likely to be around 80 percent. We
do not know what operation problems may occur after an extended period
of activated carbon injection, but even at the beginning of the year
long test, we are not able to match the previous short term
performance.
Activated carbon injected into an electrostatic precipitator at a
plant burning Powder River Basin sub bituminous coal has shown mercury
removal of 60-70 percent, but only for a short test, and with serious
consequences for ash sales and disposal. The chemistry of low rank
coals like these may limit the final mercury removal that can be
achieved with activated carbon. Again, based on this one power plant
test for a short period, it is likely that a bag house and activated
carbon injection would still only achieve 60-70 percent mercury removal
on these coals.
Activated carbon supply is also an unanswered question. Activated
carbon vendors have estimated the U.S. utility market may be between
500,000 and 1,500,000 tons per year. Between domestic supply and spare
European capacity, there may be up to 150,000 tons per year available
today. Without firm commitments, the suppliers are unwilling to make
the investments to increase the supply, indicating that widespread use
by the utility industry may create a worldwide shortage of activated
carbon. Given that it takes roughly 5 years to bring a new activated
carbon production facility on line, the prospects for widespread
availability of activated carbon may be questionable.
In addition, the shortages encountered during the installation of
NOx controls over the last several years have shown that shortages of
labor, steel, cranes, and auxiliary equipment can occur, and
installation of mercury controls under a MACT regulation or
installation of more NOx and SO<INF>2</INF> controls will surely cause
even greater material and labor shortages. The only way to alleviate
the shortages is to extend the required performance date to install the
equipment. These shortages could spill over into other industries and
cause price increases across the board.
There are other technologies under development for mercury control,
but they are all very much still in a research stage. Various multi-
pollutant processes are being touted, but they suffer from questions
about performance, cost, and waste disposal issues. Other processes to
specifically affect or capture mercury are also under development, but
are at least eight to 15 years away from deployment, if they work at
all.
More tests and longer tests are needed to be able to reliably
estimate performance and design the appropriate equipment and processes
for mercury reductions in power plants with different equipment
installed and burning different ranks of coal. The Department of Energy
is currently evaluating a number of proposals from the utility
industry, vendors, and research organizations to test a wide variety of
plants and coals for mercury control, over a longer test period. The
electric power industry, along with EPRI and equipment vendors, is
engaged in a large, coordinated effort to develop and optimize cost-
effective mercury emission reduction processes.
EPRI modeling suggests that U.S. utility emissions of mercury are
only a small contributor to deposition of mercury in the continental
U.S. Significant reductions of those emissions, either under a CSA or
MACT approach, will only reduce deposition in the U.S. by 1.5 percent,
and will only decrease exposures of the most sensitive population of
women of childbearing age by 0.5 percent in 2020, as compared to 1999.
The utility industry does not have proven technologies to reduce
mercury emissions, but we know that some reductions will occur as
SO<INF>2</INF> and NOx control systems are installed, either under
Clear Skies or business-as-usual. The industry does not hold the
position that mercury reductions should not occur, but asks that right
timeline should be followed, one that considers the practical aspects
of the cost and impact of making these reductions. Mercury emission
reductions that are required before the technology has been fully
developed will lead to significantly increased costs, to likely fuel
switching from coal to natural gas, and to possible disruption of the
nation's energy supply.
__________
Statement of Dr. Steve Benson, Energy and Environment Research Center,
The University of North Dakota
Thank you, Mr. Chairman and members of the subcommittee, for the
opportunity to testify today. My name is Steve Benson, and I am a
Senior Research Manager at the Energy & Environmental Center (EERC) at
the University of North Dakota in Grand Forks, North Dakota. I have
conducted and managed research, development, and demonstration projects
on combustion and environmental control systems for the past 25 years.
The EERC has worked in the area of mercury research for over 20
years through projects supported by U.S. Department of Energy (DOE),
the U.S. Environmental Protection Agency (EPA), State agencies, and
industry and is recognized as a world leader on mercury measurement and
control. One result of this work has been the establishment of the
Center for Air Toxic Metals (CATM). Specifically, the EERC has
conducted work in the following areas related to mercury emissions from
coal-fired power plants:
<bullet> Mercury science and chemistry
<bullet> Mercury sampling, measurement, and speciation in flue
gases
<bullet> Transformations of mercury forms during combustion and
gas cooling
<bullet> Mercury sorbent development and testing
<bullet> Bench-, pilot-, and field-scale demonstrations of mercury
control technologies
<bullet> Mercury oxidation technologies
<bullet> Coal properties impacts on mercury control
Today, I plan to provide a perspective on the challenges of
controlling mercury emissions from power plants, with a focus on the
issues related to western low-rank coals. Specifically, I will discuss
the impacts of coal type on mercury speciation and control, options for
control, and challenges to overcome.
Mercury Speciation and Control
Mercury emissions from utilities burning U.S. coals were determined
under EPA's Information Collection Request (ICR), which mandated
mercury and chlorine analyses on coal shipped to units larger than 25
MWe during 1999 and required emissions testing on 84 units selected to
represent different categories of air pollution control equipment and
coal rank.
Based on ICR data, western coals (lignite and subbituminous) on
average contain lower levels of mercury, chlorine, and sulfur than
either eastern Appalachian or interior bituminous coals. Western coals
are also distinguished by their much higher calcium and sodium
contents. These differences in constituents have been shown to have
important effects on the quantity and form of mercury emitted from a
boiler and on the capabilities of different control technologies to
remove mercury from flue gas.
The high chlorine content that is characteristic of eastern
bituminous coals has been consistently shown to increase the fraction
of the more easily removable oxidized form of mercury in the total
mercury emission, as reported both in ICR tests and other mercury
emission studies. Conversely, the experimental results indicate that
the low chlorine content of western coals is associated with the
emission of predominantly elemental mercury that is substantially more
difficult to remove. The high calcium content of western coals appears
to further reduce the oxidizing effect of the already low chlorine
content by removing part of the chlorine throughout the combustion
process. In short, distinctive differences for western coals result in
significantly different mercury conversion mechanisms in the combustion
process that present a unique challenge and employment of effective
control technologies.
Measurements of total mercury and speciated mercury forms were made
before and after the last pollution control device in the plants
selected for testing under the ICR. These data provide a good starting
point and valuable guidance for an experimental program targeted at
developing mercury control technology for western coals. The changes in
mercury speciation and removal measured across different pollution
control devices have been correlated with fuel properties. Mercury
removals were consistently lower for low-chlorine coals and, therefore,
for western coals. For example, removals across a cold electrostatic
precipitator (ESP) averaged about 35 percent for bituminous coal
compared to 10 percent for western low-rank coal (lignite and
subbituminous), and removals across a cold ESP followed by wet flue gas
desulfurization (FGD) averaged 65 percent for bituminous coal compared
to 35 percent for low-rank coal.
The percentage of elemental mercury in the flue gas leaving the
furnace and ahead of the pollution control system tended to drop
sharply, from over 85 percent to about 10 percent at coal chlorine
contents greater than 150 to 200 ppm, which distinguishes western coal
from eastern bituminous coal. In general, plants burning coals with low
levels of chlorine did not reduce oxidized mercury across particulate
control devices, whereas plants burning coals with high levels of
chlorine did show some removal of oxidized mercury across particulate
control devices. Additionally, fabric filters were the only particulate
control devices that appeared to remove any appreciable amount of
elemental mercury, but again, significant removal occurs only at coal
chlorine contents above 200 ppm.
Both spray dryer absorbers and wet scrubbers remove approximately
90 percent of the oxidized gaseous mercury entering but essentially
none of the elemental mercury. Therefore, they can be quite effective
for mercury removal overall for high-chlorine coals but ineffective for
low-chlorine coals.
In summary, the available experimental and field data indicate that
existing pollution control technologies are not effective in
controlling the emissions of elemental mercury emitted by low-chlorine
western coals.
Mercury Control Options Being Investigated
Currently, the mercury control strategies for western coal-fired
power plants involve, first, the enhancement of existing control
technologies and, second, the investigation and development of new
control technologies. The enhancement strategies include sorbent
injection with and without flue gas modifications upstream of an ESP or
fabric filter, and mercury oxidation upstream of a wet or dry FGD. The
new technologies include mercury capture using the gold-coated
materials, baghouse inserts, and carbon beds.
Sorbent injection upstream of an ESP or fabric filter. Many
potential mercury sorbents have been evaluated, including carbon-based,
calcium-based, and metal-based (i.e., gold, silver, etc.) sorbents.
Activated carbon injection is the most promising and mature technology
available for mercury control. However, the commercial experience is
primarily from application of the technology at waste incinerators
where very high chlorine levels are present. The projected annual cost
for activated carbon adsorption of mercury in a duct injection system
for a coal-fired utility is significant. Carbon-to-mercury weight
ratios of 3000 18,000 (lb of carbon injected per lb of mercury in flue
gas) have been estimated to achieve 90 percent mercury removal from a
coal combustion flue gas containing 10 mg/Nm3 of mercury. Lower-cost
and noncarbon-based sorbents that have less impact on fly ash sales and
more effectively designed sorbent injection processes are needed to
reduce costs of sorbent injection.
Recently pilot-scale testing of mercury removal efficiencies for
activated carbon injection upstream of an ESP only and an ESP baghouse
(fabric filter) was conducted for a Fort Union lignite coal. The
results, illustrated in Figure 1, for the ESP only were compared to
those obtained at full-scale utility boilers, while injecting activated
carbons into a bituminous coal combustion flue gas upstream of a
ToxiconTM (pulse-jet FF) and into bituminous and Powder River Basin
(PRB) subbituminous coal combustion flue gases upstream of an ESP. For
the ESP cases, the pilot-scale lignite and utility-scale eastern
bituminous coal tests showed mercury removal efficiency increased with
increasing activated carbon injection rates. Conversely, mercury
removal efficiency was never greater than 70 percent, regardless of the
activated carbon injection rate into the PRB subbituminous coal
combustion flue gas. This limitation is probably caused by the low
amount of acidic flue gas constituents such as chlorides that promote
mercury-activated carbon adsorption.
The use of the ESP fabric filter showed good control efficiencies
for lignite and bituminous coal because of the longer contact time with
the activated carbon sorbents. However, testing conducted at a lignite-
fired power plant equipped with a spray dryer baghouse firing Fort
Union lignite indicated poor performance of conventional activated
carbon injection to control mercury. The results indicate poor control
efficiency for two different types of activated carbons. Mercury
removal efficiencies were less than 35 percent. The poor results are
due to the low chlorine containing flue gas and the high proportion of
elemental mercury in the flue gas stream. These results re-emphasize
the challenges associated with mercury control for low-rank western
coals.
Researchers are striving to attain a more thorough understanding of
mercury species reactions on activated carbon surfaces in order to
produce more efficient sorbents. Sorbents for elemental mercury control
must both oxidize the mercury and provide a binding site.
Figure 1. Pilot-scale ESP and full-scale ToxiconTM (ESP FF) and ESP
mercury removal efficiencies as a function of activated carbon
injection rate.
Mercury oxidation upstream of wet and dry scrubbers. Mercury
oxidation technologies being investigated include catalysts, chemical
agents, and cofiring materials. The catalysts that have been tested
include selective catalytic reduction (SCR) catalysts for NOx
reduction, noble (palladium) metal-impregnated catalysts, and oxide-
impregnated catalysts. The chemical agents include chlorine-containing
salts and cofiring fuels that contain oxidizing agents.
SCR catalysts have been tested for their ability to oxidize
mercury. The ability to oxidize mercury has shown mixed results.
Mercury speciation sampling has been conducted upstream and downstream
of SCR catalysts at power plants that fire bituminous and subbituminous
coals. The results of testing indicate evidence of mercury oxidation
across SCR catalysts when firing bituminous coals. However, when firing
subbituminous coal, the results indicate limited oxidation. This is
based on a limited number of tests, and more testing needs to be
conducted on low-rank coals. The ability of SCR systems to contribute
to oxidation appears to be coal specific and is related to the
chloride, sulfur, and calcium content of the coal as well as
temperature, specific operation of the SCR catalyst, and duration of
exposure to flue gas. Western coal ash can cause blinding of the SCR
catalyst and, therefore, limit the use of SCR for western coals.
Noble metal-impregnated catalysts have shown high potential to
oxidize elemental mercury. Results from a slipstream device at a North
Dakota power plant indicated that over 80 percent conversion to
oxidized mercury is possible for periods of up to 6 months. Additional
larger-scale, longer-term tests are still needed to determine if the
technology is feasible. Tests were also conducted using iron oxides and
chromium, with little success of oxidation.
Fuel additives for mercury oxidation have shown the potential to
oxidize mercury. Chemical additives or oxidants such as chlorine-
containing salts added to the lignite have shown the ability to convert
elemental mercury to more reactive oxidized forms. Recent short-term
testing conducted at a full-scale pulverized-coal-fired North Dakota
power plant indicated the injection chloride salts resulted in
increased mercury oxidation in the flue gas. Mercury oxidation of up to
70 percent was observed at a salt injection rate that resulted in an
HCl concentration of 110 ppm in the flue gas. In addition, the
injection of salt resulted in enhanced removal of mercury across the
spray dryer baghouse with removal efficiencies of up to 50 percent in
short-term field testing. Significant operational impacts were observed
during the short-duration testing. Pressure drop across the spray dryer
baghouse increased with salt addition. Air heater pluggage was observed
with some of the salt compounds. The short tests also do not show the
potential long-term impact on corrosion, operations, and waste
disposal.
Conclusions
Currently, there is no single best technology that can be applied
broadly to control mercury emissions from coal-fired power plants.
Combinations of available control methods may be able to provide up to
90 percent control for some plants but not for others, depending upon
coal type. Lignite-and subbituminous coal-fired power plants are faced
with the most significant challenge because reliable, demonstrated
control technologies for highly unreactive elemental mercury are not
commercially available. Only limited short-term tests have been
performed to date. Significant research, development, and field testing
are required to prepare the electric utility sector for implementation
of mercury standards.
__________
Statement of Dr. Richard Bucher, W.L. Gore and Associates
Good morning, Chairman Voinovich, Ranking Member Carper and members
of the subcommittee. My name is Richard Bucher, and I am here to speak
on behalf of W.L. Gore & Associates, Inc. about some exciting technical
advances that may offer a solution to the vitally important challenge
of reducing mercury emissions.
Gore is a leading company in the field of advanced materials that
provide creative solutions to long-standing problems. We believe that a
new mercury capture system we have developed, and that has recently
been tested at the EPA, may well offer dramatic improvements in the
effectiveness, efficiency and cost of mercury capture from flue gas. We
are very excited by this development, as an improvement of this kind in
mercury control could greatly contribute both to the long-term
sustainability of power generation from coal, and to the health of all
Americans.
I greatly appreciate the opportunity to testify today. My employer,
W.L. Gore & Associates, is best known as the maker of GORE-TEX fabrics.
Many of you may own or use GORE-TEX garments for hiking, hunting or
running. Gore has been using the same high-performance polymer membrane
that makes our fabrics waterproof, windproof and breathable in many
other applications for more than 30 years. We manufacture a wide range
of electronic, medical and industrial materials and devices. Of main
interest to us today is the application of the GORE-TEX membrane, and
related membranes, to the field of industrial filtration.
Gore has built a reputation since the 1970's as a leading supplier
of high-performance filter bags to the energy industry, cement kilns,
chemical and metals production facilities, waste incinerators and other
industrial applications. Beginning in the 1990's, Gore scientists and
engineers have discovered and developed a series of radical
improvements to our bags through embedding additional materials and
properties into the structure that makes the bags work. These advances
have led to new applications for capturing over 99.99 percent of fine
particulate, for catalytically destroying over 99 percent of dioxins
and furans, and most recently for capturing over 90 percent of mercury
in flue gas streams. The result is a cleaner, safer, healthier
environment and more sustainable industry.
Our invention in the area of mercury capture has moved well beyond
the lab bench and shows dramatic promise for the future. Our product
relies on the same basic technique as the best current technology using
activated carbon to capture mercury but in a way that is up to two
orders or roughly 100 times more effective--and that has dramatic
positive implications for the waste handling and cost features of our
solution.
Current technologies to control mercury emissions from coal fired
power plants include activated carbon injection, wet scrubber
technology, selective catalytic reduction (SCR) technology,
combinations of these, as well as a host of other potential options.
The United States Environmental Protection Agency's ``Mercury Study
Report to Congress'' from December 1997 presents an exhaustive review
of the technological options and their associated financial impact.
This report indicates that active carbon injection represents the
greatest potential for the lowest cost, most technically feasible
solution.
Unfortunately, activated carbon injection has significant drawbacks
that make the technology incompatible with some coal fired power
facilities and fiscally prohibitive to others. A primary drawback of
activated carbon injection is contamination of the facility's fly ash.
Not only does the presence of the carbon render the fly ash un-salable,
but also the presence of mercury has the potential to require the fly
ash to be classified as a hazardous waste and be disposed of
accordingly. Additionally, the literature remains inconclusive
regarding the ability of activated carbon to consistently control
elemental mercury emissions, making this technology potentially
incompatible with many existing facilities burning lignite and Powder
River Basin (PRB) coals. Activated carbon injection also requires a
coal fired power plant to purchase, store, inject and dispose of a
large volume of material. This has the secondary impact of requiring
additional footprint and capital expenditures related to the necessary
equipment, and also further burdens the particulate capture equipment
with additional dust loading and pressure drop. Wet scrubber technology
is incapable of controlling elemental mercury emissions, and SCR
(selective catalytic reduction) technology is prohibitively expensive
when employed solely for mercury control.
The lack of a financially and technically compelling alternative
for mercury emissions control from coal fired power plants led W.L.
Gore and Associates, Inc. to create a technology project focused on
investigating the feasibility of efficiently trapping and immobilizing
gaseous mercury compounds from flue-gas streams using a reactive filter
system. The progress to date of this work is summarized in this
testimony.
Initial work at Gore focused on developing a wide variety of
reactive mercury trapping formulations. A bench-top screening
experiment was then conducted to identify formulations with the best
opportunity for long-term success. To add credibility and confidence to
this study, all testing was performed at the EPA's research facility in
Research Triangle Park, North Carolina. The mercury test reactor
utilized allowed for control of inlet concentrations of mercury,
SO<INF>2</INF>, NOx, H20 and O<INF>2</INF>. Analysis methods included
both continuous mercury monitoring and the widely accepted standard
Ontario Hydro test procedure. To accelerate the testing an inlet
mercury level of 1 ppm Hg, far in excess of typical coal fired power
plant emissions, was selected. To further challenge the samples,
testing was conducted at 185 C (365 F), significantly above typical
baghouse conditions.
The performance of the highly active samples were then compared
with state-of-the-art mercury absorbent technology as reported in the
literature. Most comparison materials represented treated and untreated
activated carbons. A summary of the data is shown in figure 1, with
traditional activated carbon capacities shown in blue (as reported in
the literature) and capacities for Gore technology shown in maroon. As
illustrated the Gore technology shows a dramatic increase in the
adsorption capacity in comparison to conventional materials.
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
Figure 1: Mercury adsorption capacity comparison of conventional
technologies with Gore technology.
The key to our technology lies in this increased capacity to
capture and hold mercury. This advance has the potential to allow the
coal fired power industry to move the function of mercury control from
a consumable material, as with traditional activated carbon injection,
to a system component, such as a filter bag or a filter bag insert.
Retrofitting a facility with a fabric filter bag-house already in place
can be as easy as dropping mercury trapping inserts into the existing
filters, requiring no additional system infrastructure or space. Most
significantly this approach does not contaminate the fly ash with
mercury-laden activated carbon, allowing facilities to continue to
sell, as opposed to landfill, this valuable by-product of the coal
fired power industry. Finally, our technology is completely passive in
nature. Once installed it is always operating, continuously protecting
the air we breathe, and does not require additional operators,
maintenance or monitoring.
Full size samples have been produced to test mechanical performance
and integrity in a full-scale commercial facility. Figure 2 shows a
photograph of a full size Gore-Tex filter bag with a mercury capture
insert. Two such prototypes have been installed on a commercial
incineration facility and have been successfully operational since
November 2002. This test continues to run to demonstrate long term
mechanical integrity.
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
Figure 2: Filter bag, mercury capture insert system.
As indicated, the development of our technology has progressed from
the laboratory/bench scale phase to pilot testing. Our most significant
testing to date was conducted at the EPA on their pilot scale coal
combustion unit. The 7-week trial, with 24-hour operation, was designed
to test the long-term viability of the technology under a variety of
conditions, burning both Powder River Basin (PRB) coal and Lignite
coal. Coal burning trial results, illustrated in Figure 3, indicate
mercury capture rates consistently in excess of 90 percent.
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
Figure 3: Mercury test results before and after the Gore mercury
capture system. Tests conducted with PRB Coal, Lignite Coal and Mercury
doped Nature Gas (to simulate high mercury inlet levels)
These results, assuming further successful field verification,
would allow coal burning facilities to easily comply with the most
stringent regulations set forth in the CLEAR SKIES Act of 2003, and the
CLEAN AIR PLANNING Act of 2003, and would even approach the control
levels required in the CLEAN POWER Act of 2003.
As a private company serving the air pollution control industry for
over 30 years, we at W.L. Gore & Associates clearly realize that even
the most advanced technology must provide our customers an economic
advantage. Our mercury technology is being designed to provide the
benefits stated above, while potentially costing considerably less than
activated carbon injection. The EPA research and development report
titled ``Performance and Cost of Mercury Emission Control Technology
Applications on Electric Utility Boilers'' identifies carbon injection
as the most cost-effective approach available to date for utilities
without existing scrubbers and SCR systems. For example activated
carbon injection for a 110 MW facility is projected to cost
approximately $700,000 per year. When the lost revenue of un-salable
fly ash is added, these numbers inflate to a range from $1.1MM to
$1.5MM per year. Current estimates indicate our technology could be 38
percent to 83 percent lower than these values, making our approach both
easier to implement, and more cost effective.
Although we have not begun marketing this technology to the coal
fired power industry, our interactions with prospective customers have
been nothing short of extremely encouraging. Owners and operators of
our nations coal fired power plants have expressed enthusiastic support
for our concept, citing the ease of implementation, minimal impact on
system performance, and most of all the preservation of fly ash value
which is so critical to their bottom line. Indeed initial support has
been so strong that most facilities we've interacted with have eagerly
volunteered as locations for future field-testing.
Once again, I appreciate the opportunity to testify before you
today regarding the important issue of mercury emissions control. W.L.
Gore & Associates remains committed to developing innovative,
economically feasible technologies to address our nation's air quality
challenges. We look forward to continuing to work with the committee,
the EPA and the coal fired power industry to make this technology a
commercial reality.
Thank you again for allowing me to testify, and I'm pleased to
answer any questions you may have for me.
GORE-TEX is a Registered Trademark of W.L. Gore & Associates, Inc.
Statement of Hon. Denise Nappier, Treasurer, State of Connecticut
Good morning. My name is Denise Nappier, and I am Treasurer of the
State of Connecticut. I appear before you as an institutional investor
and the principal fiduciary of a $17 billion pension fund representing
160,000 beneficiaries and plan participants. As Treasurer, I am elected
by the people of my State, who, like millions of Americans, have sought
to ensure their families' economic future through investments in the
capital markets.
I appreciate the opportunity to testify today on the relationship
between climate change, corporate governance, and the well-being of
institutional and individual investors.
I am sure you have heard considerable testimony from others more
expert than I am on the science of climate change, so I won't go there.
What I will do is give you the perspective of an institutional investor
whose responsibility it is to look to the long term value of our
pension fund.
You know, we all learned a number of very painful but very valuable
lessons from Enron and the corporate scandals that followed, and we
must not allow ourselves to lose sight of those lessons. We learned
about the disastrous impact on our investment savings, our jobs and our
economy. That is when transparency, accountability and an honest
assessment of risk are not viewed by companies as priorities, either by
design or otherwise.
As institutional and individual investors, we need accurate and
complete disclosure of information that could affect the current and
future health of the companies we invest in and that goes beyond
accounting to include, among other things, climate change as a risk
factor.
The consequences for those companies that do not act responsibly
today and take steps to assess and mitigate the risk associated with
climate change can be quite devastating. For example, companies could
face the prospect of losing their competitive edge, incurring
litigation costs, or being saddled with unforeseen capital expenses,
just to name a few. All of these factors and others can erode
shareholder value and place today's seemingly solid investment in
jeopardy.
Climate change may well be about our planet's future, but it is
also about the financial risks to corporations, and the impact on the
retirement savings of millions of Americans. As a result, we have every
right to know what is being done about it and how America's
corporations will protect their bottom line, and thereby the value of
our investments.
I believe that this issue is quickly becoming the leading edge of
the next wave of corporate governance issues, and that the market place
must begin to closely scrutinize companies to determine whether they
have honestly, directly and thoroughly evaluated climate change as a
risk factor and developed a proper response to it.
You know, in finance, where there is risk, there can also be
reward. A report by the Rose Foundation last year, ``The Environmental
Fiduciary'', reviewed the findings of a number of studies on this
issue, and concluded that ``in many cases improving environmental
performance provides a measurable boost to profitability and
shareholder value, especially over the long term.''
So, we have a real opportunity here to not only protect our
shareholder value, but also to achieve added value.
While you in Congress are debating the merits of a legislative
response to climate change, such as whether or not to enact mandatory
caps on carbon emissions, other nations are preparing to implement the
provisions of the Kyoto Protocol which include mandatory provisions.
Many of the companies in which we invest particularly companies such as
GE, ExxonMobil, and Daimler Chrysler operate in a global economy. For
them, carbon regulation is not a future possibility, it is an imminent
reality. And many State governments are also considering, and enacting,
legislation addressing climate change.
Beyond the regulatory environment, shareholders are now advancing
this issue. This year, resolutions on climate change were introduced at
23 U.S. companies and the Connecticut pension funds filed two of these
and co-filed on a third.
Shareholders are asking companies to report on their greenhouse gas
emissions, or to set a goal to reduce emissions, or to report on the
potential future financial risk to the company from their past,
present, and future emissions and to issue a plan to mitigate that
risk.
Some of these resolutions were withdrawn after productive
discussions between shareholders and management. Most of the
resolutions, however, were opposed by management and the directors.
That opposition may prove to be shortsighted penny wise and pound-
foolish.
At the annual shareholder meeting of American Electric Power held
this past April, the climate change resolution sponsored by Connecticut
received the support of 27 percent of shareholders voting. While some
people may say 27 percent is not a majority, I believe this vote is
both extraordinary and virtually unprecedented. And I should add that
an article in the Wall Street Journal the next day shared that view.
In fact, the percentage of shares voted in support of climate
change resolutions has doubled in the last 2 years, according to data
from the Investor Responsibility Research Center. Make no mistake,
there is significant investor concern about the impact that climate
change could have on our nation's economy.
In addition to the shareholder resolutions, other efforts to
encourage disclosure of potential risk are underway:
<bullet> Connecticut is a signatory of the Carbon Disclosure
Project which surveyed the 500 largest companies in the world, and
found that while 80 percent acknowledge the importance of climate
change as a financial risk, only about 40 percent were actually taking
action to address the risks and opportunities.
<bullet> We also participated in a year-long dialog sponsored by
the Coalition for Environmentally Responsible Economies (CERES), which
brought together investors, environmental activists and electric power
companies to discuss the potential financial impact of climate change
and efforts to mitigate its effects. That final report is to be issued
shortly.
<bullet> We have joined other investors in urging the Securities
and Exchange Commission to insist on more comprehensive disclosure of
climate risk.
<bullet> And I have begun organizing an Institutional Investor
Summit which will be held this fall in New York City to discuss these
issues and set an agenda for action to protect the long-term value of
our investments.
In conclusion, to look at climate change only as an environmental
issue misses the point. Climate change is an investor security issue of
the highest magnitude, and the work of corporations, legislators,
regulators, and investors is intertwined and interdependent. That's why
it is so important that we work together to protect the long-term value
of our investments, as well as our economic well-being.
I appreciate the opportunity to share my views with you today, and
stand ready to work with you in the future. Thank you very much.
__________
Statement of Dr. Margot Thorning, Chief Economist, American Council for
Capital Formation
Executive Summary
U.S. economy. The reason that the Bush Administration rejected the
Kyoto Protocol approach to addressing climate change was that they had
analyzed the costs of sharp, near term emission reductions and found
that the economic costs were significant and the benefits(in terms of
reduced global concentrations of CO2) were negligible. A range of
credible macroeconomic models showed that reducing U.S. CO2 emissions
to the Kyoto Protocol level(7 percent below 1990 levels by 2010) would
reduce U.S. GDP by 2 to almost 4 percent annually.
Impact of Clear Skies Act of 2003 (S. 485) on the Financial Health
of the Utility Sector. Most observers conclude that pollution reduction
targets in S. 485 will be a challenge for utilities and add billions of
dollars to utilities costs. Nonetheless, some in the industry believe
that the Clear Skies goals are achievable and can be reached without
sharp impacts on electricity prices or on the financial viability of
the industry. Providing certainty to investors for the next decade and
a half as to the targets for the three pollutants is, in this instance
, likely to reduce the risk and the cost of capital for utility
investors.
Impact of Carbon Emission Emission Targets on the U.S. Utility
Sector. Proponents of carbon emission caps for the utility sector argue
that eventually the U.S. will decide to impose carbon caps and that
utilities would feel that ``safer'' about investing if they were told
now what the carbon reduction target would be. The argument has several
weaknesses. First, imposing carbon caps such as those proposed by
Senator Jeffords, which requires a reduction in CO2 in the range of the
cut required by the Kyoto Protocol would be just the first step in a
series of ever more severe emission reductions. Second, unlike their
competitors in the EU, U.S. firms would be compelled to meet the
emission caps mandated by government legislation. Thus, European
companies are not generally threatened with harsh legal penalties as
are U.S. firms when targets are missed. Third, carbon caps will
increase the price of electricity. As U.S. economic growth slows in
response to higher electricity prices, demand for electricity falls and
profits decline. Thus, by weakening demand for the product
(electricity) carbon caps will increase the the risk and uncertainty of
investment in utilities.
A Positive Step to Reducing the Risk and Increasing Certainty for
Utility Investment. Many experts conclude that the depreciation
allowances provided for utility investments under the Federal tax code
are out of date. Now that utility markets are becoming increasingly
deregulated, investors have no assurance that their investment will
actually pay off. Thus, shorter capital cost recovery periods could
materially reduce the risk of investment because the payback period
would be shorter.
Climate is a Global Issue, Requiring a Global Perspective. Any
threat of climate change associated with greenhouse gas emissions is
linked to global emissions, not emissions in any one country or one
industry. And given that emissions in developing countries like China
and India are projected to account for 84 percent of the increase in
global emissions between 1990 and 2010, any climate policy that does
not address developing country emissions is doomed to failure.
Introduction
My name is Margo Thorning and I am pleased to present this
testimony to the Senate Environment and Public Works Committee,
Subcommittee on Clean Air, Climate Change, and Nuclear Safety.
The American Council for Capital Formation represents a broad
cross-section of the American business community, including the
manufacturing and financial sectors, Fortune 500 companies and smaller
firms, investors, and associations from all sectors of the economy. Our
distinguished board of directors includes cabinet members of prior
Republican and Democratic administrations, former Members of Congress,
prominent business leaders, and public finance and environmental policy
experts.
The ACCF is now celebrating its 30th year of leadership in
advocating tax, regulatory, environmental, and trade policies to
increase U.S. economic growth and environmental quality.
We commend Chairman Voinovich and his committee for their focus on
positive changes to the Clean Air Act as contained in the Bush
Administration's Clear Skies proposal. The Clear Skies proposal calls
for reductions in SO2, nitrous oxides (NOx), and mercury, but does not
regulate CO2 emissions. The focus of my testimony will be on the
potential impact of the Clear Skies Act of 2003 and proposals to cap
power plant carbon emissions, such as those put forward by Senator
Jeffords, on the financial health and vitality of the utility sector.
Other proposals include caps on emissions for other sectors of the
economy.
Impact of Carbon Caps on the U.S. economy
The reason that the Bush Administration rejected the Kyoto Protocol
approach to addressing climate change was that they had analyzed the
costs of sharp, near term emission reductions and found that the
economic costs were significant and the benefits(in terms of reduced
global concentrations of CO2) were negligible. A range of credible
macroeconomic models showed that reducing U.S. CO2 emissions to the
Kyoto Protocol level(7 percent below 1990 levels by 2010) would reduce
U.S. GDP by 2 to almost 4 percent annually.
The models on which the Administration relied showed that as carbon
emissions are capped or constrained, economic growth slows due to lost
output as new energy taxes are imposed and prices rise for carbon-
intensive goods, which must be produced using less carbon and more
expensive production processes. In addition, the capital stock
accumulates more slowly reflecting the premature obsolescence of
capital equipment due to the sharp energy price increases required to
meet a target of reducing emissions to 93 percent of l990 levels by
2010.
Instead, the Administration has chosen a different strategy, one
based on accelerating the downward trend in U.S. greenhouse gas (GHG)
emission intensity. The goal of reducing economy wide GHG intensity per
dollar of GDP by 18 percent over the next decade(compared to a 14
percent reduction under the baseline) will allow continued economic
growth while encouraging a slowing of the rate of growth of CO2
emissions. This alternative approach does, however, require a major
commitment to incentives for deploying new technology, a long term
research and development program for carbon sequestration, alternative
energy sources for electricity generation, transportation and energy
conservation.
Given the quality and quantity of empirical research by
demonstrating that near term targets and timetables for CO2 emission
reductions will cost U.S. jobs, economic growth and competitiveness
(see www.accf.org for testimony before the Senate Governmental Affairs
Committee in June, 2001 for more details), it seems unwise to propose
hobbling the U.S. utility sector with the same type of regime which the
U.S. Senate rejected by a vote of 95 to 0 in l997 for the U.S. economy
as a whole. Impact of Clear Skies Act of 2003 (S. 485) on the Financial
Health of the Utility Sector.
The focus of the Committees' hearing today is to assess the effects
of S. 485, the ``Clear Skies Act of 2003'' on the ability of the
utility sector reduce pollution from SO2, NO2 and mercury and meet the
expected growth in demand for electricity as well. Most observers
conclude that pollution reduction targets in S. 485 will be a challenge
for utilities and add billions of dollars to utilities costs.
Nonetheless, some in the industry believe that the Clear Skies goals
are achievable and can be reached without sharp impacts on electricity
prices or on the financial viability of the industry. Providing
certainty to investors for the next decade and a half as to the targets
for the three pollutants is, in this instance, likely to reduce the
risk and the cost of capital for utility investors.
Impact of Carbon Emission Emission Targets on the U.S. Utility Sector
Proponents of carbon emission caps for the utility sector argue
that eventually the U.S. will decide to impose carbon caps and that
utilities would feel that ``safer'' about investing if they were told
now what the carbon reduction target would be. The argument has several
weaknesses.
First, imposing carbon caps such as those proposed by Senator
Jeffords, which requires a reduction in CO2 in the range of the cut
required by the Kyoto Protocol would be just the first step in a series
of ever more severe emission reductions (see Figure 1). This agenda was
clearly understood by the architects of Kyoto in 1997. For example, Tim
Wirth, the former Clinton Administration climate policy negotiator,
testified in 1997 that carbon emissions had to be cut by up 10 times
the Kyoto target (a 70 percent reduction). The UK has recently
announced a target of a 60 perecent reduction by 2050. Adopting a
proposal such as S. 366, which requires cuts almost as large as the
Kyoto Protocol would increase the pressure on the U.S. from the
European Union to adopt the EU's next emission reduction target for the
second commitment period. The EU is expected to push for a 60 percent
reduction from 1990 emission levels by the year 2050 at the COP 9
meeting later this year in Italy. Thus, even if the U.S. imposes a
carbon cap like that in S. 366, there can be no certainty those caps
will hold in the future and that the goal posts will not be moved back
in response to pressure from the EU.
Second, unlike their competitors in the EU, U.S. firms would be
compelled to meet the emission caps mandated by government legislation.
In contrast, the relationship between the regulators and the regulated
is different for industry in the EU; there is more accommodation and
willingness to let targets slip if they are not achieved. Thus,
European companies are not generally threatened with harsh legal
penalties as are U.S. firms when targets are missed. In addition, the
European Union's own projections indicate that the EU is not likely to
meet its first GHG emissions reduction target.
Third, carbon caps will increase the price of electricity. As U.S.
economic growth slows in response to higher electricity prices, demand
for electricity falls and profits decline. As utilities attempt to
switch from coal to natural gas to reduce CO2 emissions, gas prices
rise which in turn raises the cost of feedstocks to the chemical and
fertilizer industries and fuel to other industrial sectors. As previous
research has demonstrated, carbon caps will make it harder for U.S.
manufacturing to keep its operations at home and will increase the
attractiveness of locating in areas like China with low cost labor and
no carbon emission caps. Thus, by weakening demand for the product
(electricity) carbon caps will increase the the risk and uncertainty of
investment in utilities.
A Positive Step to Reducing the Risk and Increasing Certainty for
Utility Investment
Many experts conclude that the depreciation allowances provided for
utility investments under the Federal tax code are out of date. Now
that utility markets are becoming increasingly deregulated, investors
have no assurance that their investment will actually pay off. Thus,
shorter capital cost recovery periods could materially reduce the risk
of investment because the payback period would be shorter. A U.S.
Department of the Treasury report to Congress released in 2000 noted
that the current class lives for utilities may no longer be appropriate
because of increased competitiveness in the industry.
If the United States is to meet the challenges of maintaining
strong productivity growth, then new investment in all types of assets,
including energy supply, will be required. For example, investorowned
utilities estimate needed capital expenditures of almost $90 billion
over the 2001-03 period. A study commissioned by the ACCF Center for
Policy Research shows that the United States ranks in the bottom third
or below in terms of capital cost recovery allowances for transmission
and generation of electricity, as well as investments in pollution
control (see Figure 2 and Table 1). For example, after 5 years, a U.S.
company recovers only 29 percent of its investment in a combined heat
and power generation facility compared to 51 percent in Germany, 53
percent in Japan, 100 percent in the Netherlands, and 105 percent in
China. Thus, investment costs are recovered much more quickly in these
and other countries with which the United States competes or where U.S.
business might choose to locate or expand manufacturing operations.
(See previous ACCF testimony at www.accf.org for additional
international comparisons.)
Corporate tax rates are also high in the United States relative to
our competitors, and this tendency is worsening. The average top
corporate income tax rate in the European Union has dropped from 34.4
percent in 1995 to 31.7 percent in 2001; the top U.S. corporate income
tax rate was 35 percent in 1995 and remains at that level today.
Climate is a Global Issue, Requiring a Global Perspective
Any threat of climate change associated with greenhouse gas
emissions is linked to global emissions, not emissions in any one
country or one industry. And given that emissions in developing
countries like China and India are projected to account for 84 percent
of the increase in global emissions between 1990 and 2010, any climate
policy that does not address developing country emissions is doomed to
failure. Promoting a voluntary, economy-linked goal for developing
countries encourages their participation in a global effort without
threatening their goal of improving living standards for their
citizens.
Pro-growth tax changes, including faster depreciation and enhanced
tax credits combined with regulatory reform could strengthen the U.S.
economy and reduce emissions intensity.
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__________
Statement of Wes Taylor, President, Production, TXU Energy
Introduction and Background
Mr. Chairman and members of the subcommittee, I am privileged to
appear today on behalf of TXU and participate in this subcommittee's
ongoing review of S. 485, the Clear Skies Act. I applaud the
comprehensive nature of the subcommittee's hearing process for S. 485,
and I hope that you will find my statement today on electric generator
capital investment decisions helpful during your continued
deliberations.
TXU supports President Bush's efforts to reduce SO<INF>2</INF>, NOx
and mercury emissions through a three pollutant framework such as that
used in the Clear Skies Act. However, if the Clear Skies Act is to
avoid harmful fuel switching, the Clear Skies legislation must base
Phase I mercury limits on ``co-benefits'' (i.e., that level of mercury
emission reduction that results from meeting SO<INF>2</INF> and NOx
emission limitations) and should not mandate controls on carbon
emissions. Only under these conditions can the Clear Skies Act meet the
goal of promoting long-term planning certainty for the electric
generator sector and achieving significant reductions in emissions of
NOx, SO<INF>2</INF> and mercury.
My statement today will first discuss the general approach used by
TXU and other electric generators to analyze capital investment
decisions relating to emission control equipment. Typically, this
approach includes identification of all potential compliance options,
including shutting down power plants and switching fuels, and an
extensive long-term cost/benefit analysis for each compliance option.
The second part of my statement will focus specifically on TXU's
selection of the SO<INF>2</INF> and NOx controls necessary to meet
current State and Federal emissions requirements. It has been critical
that TXU accurately estimate both the cost and effectiveness of the
available control technologies. Notably, TXU's efforts to significantly
reduce NOx and SO<INF>2</INF> emissions as required by Texas law and
the Texas State Implementation Plan under the Clean Air Act have been
extraordinarily successful, resulting in early compliance with all
applicable mandates in 2003.
Finally, my statement will address the capital investment analysis
that would be employed by TXU to evaluate the emission reductions
proposed in the Clear Skies Act legislation, where mercury controls are
expected to be the key planning issue. Currently, there is no
commercially demonstrated control technology for mercury and the
technologies used in pilot projects have achieved inconsistent results
at extreme expense, especially for lignite. Because meeting the Clear
Skies Act SO<INF>2</INF> and NOx limits will require significant
capital investment by electric generators, adding a requirement for
unproven and expensive mercury control technology could result in very
costly fuel switching by coal-fired plants. Fuel switching would
contribute to price spikes in the natural gas market that would impact
not only the electric generator sector, but also consumers and many
industries that use natural gas as a raw material or feedstock. The
Phase I mercury emission reduction contained in the bill needs to be
set at the SO<INF>2</INF> and NOx ``co-benefits'' level, which is not
expected to result in significant fuel switching by electricity
generators.
Even if the Phase I mercury emission reduction contained in the
bill is revised and set at the SO<INF>2</INF> and NOx ``co-benefits''
level, meeting the Phase II mercury level of 15 tons in the year 2018
is wholly a bet on future technology. Such uncertainty presents
significant investment capital planning problems for electric
generators, and may very well overwhelm an electric generator's capital
investment analysis for the Phase I SO<INF>2</INF> and NOx limits.
Moreover, the mercury emission controls would not significantly reduce
global loading of mercury--the Environmental Protection Agency has
stated that U.S. electric generators comprise less than 1 percent of
the global mercury emissions.
General Approach To Capital Investment Decisionmaking For Emission
Controls
By way of background, TXU is a major energy company with operations
in North America and Australia. TXU manages a diverse energy portfolio
with a strategic mix of over $30 billion of assets.
In its primary market of Texas, TXU's portfolio includes 19,000
megawatts of generation with a fuel mix of coal/lignite, natural gas/
oil, nuclear power and wind. TXU serves five million customers in North
America and Australia, including 2.7 million competitive electric
customers in Texas where it is the leading energy retailer.
TXU's commitment to environmental excellence is well-demonstrated.
The Company is one of the nation's largest coal/lignite generators, yet
TXU's SO<INF>2</INF> emission rate in 2001 was 21 percent below the
national average (52 electric generation companies had higher
SO<INF>2</INF> emission rates than TXU in 2000). Similarly, while TXU
is the 8th-largest generator of electricity in the Nation, the
Company's NOx emission rate in 2001 was 18 percent below the national
average (61 electric generation companies had higher NOx emission rates
than TXU in 2000). Additionally, TXU's CO<INF>2</INF> emission rate in
2001 was 8 percent below the national average and TXU has implemented
the largest voluntary greenhouse gas reduction program among all the
investor-owned electric generation companies in the United States.
The first step in an electric generator's capital investment
analysis for emission controls is to identify all viable alternate
investment scenarios for compliance with a new emissions standard.
During this step of the investment analysis, the alternate investment
scenarios can range from:
<bullet> Attempting a smaller level of capital investment for
emissions control technologies at a power plant--but typically a
smaller investment in control technologies results in a significant
loss of electricity production capacity at the power plant;
<bullet> Committing to significant levels of capital investment
for emissions control technologies in order to achieve the least
possible loss of electricity production capacity at the plant;
<bullet> Fuel switching at a power plant; or
<bullet> Closing down a power plant, losing all the generating
capacity at that power plant but avoiding new capital investment.
Next, the company will calculate the total economic cost of each
alternative over the lifetime of the power plant, taking into account
any income associated with each alternative. This is a detailed net
present-value analysis that, among other things, requires accurate
information on the operational costs of a particular control technology
and its performance in reducing emissions over the remaining life of
each power plant. Specifically, this long-term economic cost analysis
of each alternate investment scenario will focus on:
<bullet> The amount of capital investment needed up-front and
known to be needed in the future;
<bullet> The operating expenses associated with the current
capital investment and known future capital investment;
<bullet> The overall operating expenses of a power plant under the
alternative investment scenario (this might include the purchase of
emissions credits);
<bullet> Whether the alternative investment scenario has operating
restrictions that would reduce the production of electricity (and thus
reduce income);
<bullet> The potential income, if any, from the alternative
investment scenario (this might include the sales of emissions credits
or byproducts generated by the emissions control equipment).
Armed with the net present value figures, and the pro-forma
financial statements related to the net present values, the company
will evaluate the financial impacts of each alternate investment
scenario against any potential financial constraints faced by the
company, such as borrowing limits, debt covenants, or limits on
financial ratios. From this process, the company will select a viable
alternative investment scenario with the highest overall economic
value.
Capital Investment Decisions Relating To Existing SO<INF>2</INF> and
NOx Requirements
It may be helpful to review briefly TXU's capital investment
decisionmaking process for SO<INF>2</INF> requirements under the Clean
Air Act's acid rain program, and for NOx reductions required under
Texas State law. Both of these capital investment decisionmaking
processes used the general framework discussed earlier, but each also
had unique factors that shaped the analysis. Critical to both types of
evaluation, however, was the availability of accurate information on
the costs and effectiveness of the available options for emissions
control equipment.
For example, under the Federal acid rain program, SO<INF>2</INF>
reductions were achieved by a two-phased national cap without
additional mandatory plant-by-plant restrictions. Accordingly, TXU and
other affected electric generators could assess decisions over their
entire fleet of power plants, choosing investments and controlling
those plants where emissions reductions made the most economic sense.
For its capital investment analysis, TXU developed alternate investment
scenarios using options available throughout its entire portfolio of
lignite/coal fueled units while maintaining compliance with local
SO<INF>2</INF> emissions limits.
The primary control technology used to achieve significant
reduction of SO<INF>2</INF> emissions is called a ``scrubber.'' To a
lesser extent, fuel switching to a low sulfur subbituminous coal can
also reduce SO<INF>2</INF> emissions. In its analysis of SO<INF>2</INF>
control equipment investment options, TXU found a wide, plant-by-plant
variation in the cost of scrubbers, mainly due to different plant
designs. Variations in cost were dependent on factors such as existing
control equipment and available space in the plant configuration for
installation of a new scrubber. In certain instances, elaborate plant
modifications would be required to withstand the impact of increased
scrubbing. Installation deadlines also significantly impact the cost of
installation. Other key drivers in TXU's analysis were the operating
costs of the scrubbers, and whether the scrubbers could be expected to
perform at planned removal rates for the life of the facility.
TXU's decisionmaking process for compliance with the acid rain
program was enhanced by our knowledge of well-tested scrubber
technology, coupled with accurate information on the annual operational
costs for such equipment. Using this information, TXU could develop
precise alternate investment scenarios and compare the scenarios to
other compliance strategies, such as purchase of emission credits in
the open market.
There are nine coal-fired units in the TXU fleet, five of which are
scrubbed, accounting for 61 percent of our coal-fired generation. The
cost estimate for installing scrubbers at the four remaining coal-fired
units is approximately $400 million.
In contrast to TXU's experience with the acid rain program, the NOx
controls required to meet Texas' State NOx limits involved a much more
complex analysis of alternate investment scenarios. Under a Texas State
law adopted in 1999, electric generators in Texas were required by May,
2003 to achieve a 50 percent reduction in NOx emissions from certain of
its plants, as compared to 1997 emissions. TXU and other generators
also faced deadlines for achieving other NOx reduction targets in
various Texas regions to meet the State Implementation Plan
requirements under the Clean Air Act. Additionally, TXU was required to
achieve a 25 percent reduction in SO<INF>2</INF> emissions from certain
of its plants. TXU achieved all those NOx and SO<INF>2</INF>
reductions, plus more, ahead of schedule. Accordingly, TXU's experience
in developing a capital investment plan to meet the Texas NOx limits
may be instructive as to what electric generators would face under the
Clear Skies Act.
Generally, two factors increased the complexity of TXU's capital
investment analysis relating to the Texas NOx requirements:
<bullet> First, in contrast to the SO<INF>2</INF> scrubber
analysis, there were many different NOx technologies that could
potentially achieve reductions at each power plant. This probably holds
true for the NOx emission limitations contained in the Clear Skies Act
as well.
<bullet> Second, rather than fleet-wide emission limit (as in the
SO<INF>2</INF> example), TXU was required to comply with no less than
five different localized or regional NOx limits for its power plants.
This increase in the number of variables complicated the
alternative investment analysis. Additionally, localized and multiple
regional NOx limits degrade the market for NOx emission allowances,
reducing the ability of the NOx emission allowance market to reduce
overall compliance costs.
TXU will spend approximately $230 million to complete the NOx
retrofits required in order to comply with State regulations, through
2005.
Although somewhat more complicated than the SO<INF>2</INF> acid
rain program alternative investment analysis, the analysis of TXU's NOx
alternative investment scenarios was again aided by our knowledge of
well-tested, proven removal technologies and accurate information on
the annual operational costs for such equipment. Under the Federal acid
rain program and the Texas State NOx limits, TXU has committed hundreds
of millions of dollars for capital investment in control technologies.
However, the company made that commitment after an extensive economic
analysis, with relative certainty of the reductions it expected to
achieve.
Potential Additional Capital Investment Under The Clear Skies Act
TXU supports a three pollutant framework such as that used in the
Clear Skies Act. However, if the Clear Skies Act is to avoid harmful
fuel-switching, the Clear Skies legislation should not mandate controls
on carbon emissions and must base Phase I mercury limits on ``co-
benefits'' (i.e., that level of mercury emission reduction that results
from meeting SO<INF>2</INF> and NOx emission limitations). Only under
these conditions can the Clear Skies Act meet the goal of promoting
long-term planning certainty for the electric generator sector and
achieving significant reductions in emissions of NOx, SO<INF>2</INF>
and mercury.
As introduced, the Clear Skies Act contains the following schedule
for reductions in SO<INF>2</INF>, NOx and mercury emissions:
The Clear Skies Act contains major reductions in SO<INF>2</INF> and
NOx emissions when compared to today's emission levels. Achieving these
reductions will require an unprecedented number of state-of-the-art
emission controls. With the significantly increased number of emission
controls being installed, an electric generator's capital investment
analysis must now also include dealing with limitations on the amount
of emission control equipment that can be installed at any one time,
based on system reliability requirements for the availability of power
plants, as well as the shortage of trained professionals that perform
such installations and the manufacturing capability to handle a major
surge in orders for emission reduction equipment.
Appropriately, the Clear Skies Act does not regulate carbon
emissions. Carbon is not a regulated pollutant under the Clean Air Act,
nor should it be. Presently, carbon reductions are costly and complex.
Given these circumstances, TXU supports the voluntary carbon reduction
goals established by the President, as well as funding additional
research concerning carbon emission reduction technologies.
However, the mercury provisions of the Clear Skies Act legislation
may cause fuel switching by electric generators in order to meet
emissions limits. Currently, there is no commercially demonstrated
control technology for mercury. Several pilot tests have used activated
carbon injection technology, but much remains unknown with that
technology and it appears to be prohibitively expensive.
Accordingly, the Environmental Protection Agency's initial position
was that the Clear Skies Phase I mercury limit of 26 tons in 2010 would
not require a power plant to install mercury-specific emissions
controls--the Phase I mercury limit could instead be met solely by the
amount of mercury removed as a ``co-benefit'' of the SO<INF>2</INF> and
NOx emission controls installed under the Clear Skies Act. There is now
considerable doubt as to whether the Phase I mercury limit can be met
through such ``co-benefits''. If the Phase I mercury limit cannot be
met by ``co-benefits'', power plants must in the near term install
unproven and expensive mercury-specific emission control technology, or
fuel switch.
Given the already significant capital investment required of
electric generators to meet the Clear Skies Act SO<INF>2</INF> and NOx
limits, the Phase I mercury emission reduction required by the bill
should be revised and set at the SO<INF>2</INF> and NOx ``co-benefits''
level, as was initially suggested by the Administration. It is
important to remember that, even if the Clear Skies Act Phase I mercury
level is revised and set at the SO<INF>2</INF> and NOx ``co-benefits''
level, meeting the Phase II mercury limit of 15 tons in the year 2018
is a bet on future technology.
The lignite coal used by TXU and other electric generators faces
additional hurdles with regard to mercury removal. The mercury content
of lignite is higher than that of bituminous or subbituminous coal. In
addition, the combination of mercury and other constituents in lignite
coal is believed to be more difficult to remove using the pilot-tested
activated carbon injection technology. The lack of a demonstrated
emissions control technology could result in fuel switching for
lignite-powered plants, if not plant closings.
This high level of uncertainty with regard to mercury emissions
reductions from lignite-powered coal plants requires that TXU factor
its approach for compliance with the 2018 Phase II mercury levels into
the planning and decisionmaking process for the Phase I SO<INF>2</INF>
and NOx levels. That result occurs because TXU's different compliance
options for Phase I (for example, continued use of lignite with
scrubbers or, alternatively, fuel-switching for the SO<INF>2</INF>
limit) may have very different implications for meeting the Phase II
mercury levels. This decision tree is outlined at Figure 1.
In summary, the lack of a demonstrated emissions control technology
for mercury prevents accurate long-term planning by the electric
generating sector. Companies have no idea of the long-term costs
associated with mercury removal technology or the effectiveness of the
technology once it is installed. This situation is in sharp contrast to
the SO<INF>2</INF> and NOx analysis discussed earlier, and
significantly complicates the capital investment analysis.
Conclusion
TXU supports President Bush's efforts to reduce SO<INF>2</INF>, NOx
and mercury emissions through a three pollutant framework such as that
used in the Clear Skies Act. However, if the Clear Skies Act is to
avoid harmful fuel switching, the Clear Skies legislation must base
Phase I mercury limits on SO<INF>2</INF> and NOx ``co-benefits'' and
should not mandate controls on carbon emissions. The Phase II mercury
limits beyond ``co-benefits'' need to be predicated on the existence of
a viable, commercially available mercury emission control technology.
Only under these conditions can the Clear Skies Act meet the goal of
promoting long-term planning certainty for the electric generator
sector and achieving significant reductions in emissions of NOx,
SO<INF>2</INF> and mercury.
__________
Statement of Jim McGinnis, Managing Director, Morgan Stanley
Introduction
Good morning. My name is Jim McGinnis, and I am a Managing Director
in Morgan Stanley's Investment Banking Division, with responsibilities
in providing advice on capital raising, restructuring and mergers and
acquisitions involving companies in the energy sector. I have focused
my work on power and energy providers, utilities and unregulated
competitors alike, through a 15-year period characterized by nearly
continuous, and episodically chaotic structural change in the sector.
My comments today will address certain of the potential effects on
capital formation in the power industry which we expect from the
enactment of multi-emissions technology legislation. In particular, I
will focus my remarks on the need for and benefits of clarity in the
context of a major capital expenditure program such as the one this
legislation envisions. Also, I will discuss a few indicators of the
economic health of the industry at this time, one characterized by
companies seeking to repair balance sheets and regain investor
confidence following a tumultuous period in the sector
My predecessors, colleagues and I at Morgan Stanley have been very
active in raising new capital on behalf of companies in this industry
since the Firm's formation some seven decades ago, through sharply
different market environments and economic cycles.
I believe that we institutionally understand the challenges faced
by our industry clients today in competing for investor capital through
new issues and consistently providing a competitive return on such
capital to ensure access to capital for future projects. But today,
just as in past decades, providing access to capital on reasonable
terms to this industry is not just a business niche; it is a critical
underpinning of a healthy national economy.
The utility industry is a reasonably large user of domestic
investor capital, with over $800 billion of institutional and
individual investment dollars deployed in the nation's power and gas
utility and generation sectors. Yet, despite that large number,
investor sensitivities to cash-flows, requirements for debt repayments
or significant new capital spending can sharply affect any individual
company's access to capital. An event-related swell of concern in the
market can, and has in the past 12 months, effectively cutoff capital
access for even financially sizable companies for significant periods
of time.
Interruptions or limitations on capital access in our industry
sector can have far-reaching impacts--impacts as gradual and relentless
as forcing power-intensive industries to relocate facilities elsewhere
in search of cheaper power; or as immediate and dramatic as rolling
blackouts in times of supply crisis.
The Need for Clarity
Our focus on multi-emissions legislation today is a particularly
important dimension of this continuous provision of access to capital.
I believe the various sets of actors in the industry its senior
management, workforces, local regulators, employees, customers and
investors generally recognize and accept the impending, reasonably
sized investment in emissions control technologies as a necessary and
useful expenditure.
Indeed, we can observe that some such impending expenditures are
expected by the market a fact made evident by the market's neutral-to-
slightly positive response to Dominion Resources' recent announcement,
made April 18th, of its $1.2 billion agreement with the Environmental
Protection Agency to reduce emissions across its 24,000 MW generation
portfolio. This agreement, achieved by a financially strong entity with
supportive local regulatory treatment provided clear costs and benefits
to its signors.
In contrast, capital providers to the industry can be expected to
react poorly to financially significant expenditures required of
utilities and unregulated generators in the absence of clarity and
permanence, but rather in the context of potentially shifting
requirements, unproven technologies and uneven regulatory treatment.
This need for clarity has heightened importance now, at a time when
industry participants have been roiled by unprecedented financial
disruptions and failures, and by persistent uncertainties elsewhere in
the public policy arena. Investors and company leaders are currently
wrestling with a variety of fundamental uncertainties: state-by-state
changes in policies related to industry restructuring; purchased power
contract disputes, as in California; accounting standards revisions
related to energy purchasing, trading and hedging activities;
uncertainty over aspects of currently pending energy legislation such
as PUHCA reform; FERC transmission policy, transmission siting rules,
and transmission-related tax policy on transfers in ownership; and
certain aspects of bankruptcy code reform, just to name a few.
Clarity as to the durability of legislative requirements is, for
investors in the power sector, not just a modest benefit, it is a
defining attribute. Typically, utility companies' economics depend
predominantly on the policy decisions of State regulators, and the
framework of regulatory decisionmaking has very significant comparative
impacts on those companies' access to and cost of capital. To wit,
California utilities, which, in my view, have experienced many years of
regulatory antagonism and turmoil, exacerbated by and culminating in
the 2001 statewide energy crisis, trade at a consistent discount to
non-California utilities. For example, today, the average non-
California utility enjoys a 32 percent price-to-earnings valuation
premium to the average of the three major California investor owned
utilities. It is in the context of such selective localized uncertainty
that Federal policies related to large, new emissions-reduction
expenditures must be unambiguous and durable.
One important attribute of legislation to reduce power generator
emissions which supports the objective of clarity is the abundance of
market signals from freely traded emissions allowances. Allowance
trading improves the ability of affected companies to make clear
choices as to the most cost effective of various strategies they can
deploy in meeting emissions-reductions targets and promotes capital
efficiencies when capital is scarce.
Stress in the Sector
The basic requirement for clarity in policy decisions related to
what one of your prior witnesses has identified as one of the largest
private industry investment initiatives ever conceived comes at a time
when the financial health of the industry is, at best, on the mend from
a dramatic and troublesome financial cycle.
Rather than recount the multiple factors and contributing exogenous
occurrences which created the downturn in the merchant energy sector
and its related impacts on utilities, I will focus on its current
health and the cost-of-capital implications of that current state.
One co-determinant of the cost of funds and access to bond
investors for industry participants is the credit rating agency's
public assignment of a rating to a particular issuer or a particular
security issued by a company. In a stable industry and economic
environment, investors might expect to see an equal number of upgrades
to downgrades to such ratings.
The electric sector industry is in the midst, though perhaps the
trailing end, of the worst ever period for credit rating deterioration.
Since January 1, 2002, we have seen 232 separate rating downgrades
(some of multiple rating categories at one time) versus only 18 ratings
upgrades. These downgrades are a symptom, and effect of massive
investor losses on bonds and bank loans to companies in the sector, and
in the merchant power generation market in particular.
Whereas underlying US Treasury yields have improved materially and
access to high yield or sub-investment grade bond markets has also
improved markedly over the last 12 months, these helpful indicia should
not obscure a central point: the industry has been systematically
downgraded in relative risk/reward terms. This fact may well have a
large, adverse impact on cost of and access to capital long after the
current rally in Treasuries or junk bonds subsides.
Also, during the 2 years ending March 31, 2003, equity losses for
investors have been staggering as well. The collective equity market
capitalizations of seven selected merchant power industry participants
alone, even excluding Enron, declined by $93 Billion from 2 years
earlier, when the same entities were capitalized by the market at $102
billion, a staggering loss across some of the then most admired names
in the industry.
There are broader impacts on the power sector of the recent
merchant power sector value destruction episode. In recent years,
statewide restructuring in California, New York, Illinois, Texas,
Pennsylvania, Ohio, Delaware and Washington, DC, has resulted in the
large legacy generation portfolios of incumbent utilities to be
transferred in those locations to unregulated power merchants, many of
which have experienced a sharp decline in financial strength. This
creates some potential for new counterparty exposures for electric
distribution companies who rely on unregulated megawatt-hours to meet
supply needs.
Indeed, some 2/3's or more of the generation capacity sold by ConEd
in New York City, by DQE in Pittsburgh, by Pepco in Washington, DC, by
Commonwealth Edison and by Illinova in Illinois, is now owned by one of
the merchant power owners caught up in the financial turmoil referred
to above. These generation companies are rated significantly below
investment-grade rated by the credit rating agencies and are
experiencing limited access to new capital.
Thus, in some cases, even those utilities whose parent companies
did not embark upon a growth-focused expansion into unregulated
merchant power in 2001-2002 now find a different, vexing credit issue:
a weak counterparty on which they depend for the bulk of their reliable
power supply. These unregulated counterparts are poorly equipped to
absorb a large financial obligation, particularly in the context of any
lack of clarity on the costs and benefits of such expenditures.
Clarity Will Drive Capital Access
In evaluating legislation to reduce power generator emissions which
envisions one of the nation's most ambitious private industry
investment programs ever conceived, I would submit that committee
members examine several important market dynamics: multiple critical
uncertainties in upcoming energy policy and regulatory decisions,
uncertainties related to fuel cost and availability, and, generally,
the weakened financial capacity of the industry's generation
participants.
In this context, moving forward with legislation that provides
clarity, durability and an efficient means to allocate expenditure
decisions can be an important step toward assuring that sufficient,
well-priced capital will be available from private investors to make
such significant future expenditures. That assurance is important both
for the success of an emissions-control policy objective, and also for
the health of a critical infrastructure industry in this nation's
economy.
__________
Statement of Douglas Cogan, Deputy Director, Social Issues Service,
Investor Responsibility Research Center
My name is Douglas G. Cogan. I am the Deputy Director of Social
Issues for the Investor Responsibility Research Center. IRRC is an
independent research firm, based in Washington, DC, that provides
impartial information on corporate governance, social and environmental
issues affecting investors and corporations worldwide. Founded in 1972,
IRRC serves more than 500 institutional investors, corporations, law
firms, universities, foundations, religious institutions and other
organizations.
IRRC does not take advocacy positions on public policy issues.
Accordingly, I will not be commenting on the merits of specific clean
air bills being considered by this committee. I will address three
broader issues as they relate to the merits of legislation that
includes CO<INF>2</INF> emissions controls. These issues are:
1. The inevitability of carbon dioxide controls.
2. The need for more corporate disclosure and investor certainty on
the climate change issue.
3. The connection between climate change and good corporate
governance practices.
Inevitability of carbon dioxide controls
IRRC has long served as an early warning system for the business
and investment community. In the 1970's, IRRC published reports on the
coming deregulation of the electric utility industry and obstacles
facing nuclear power. In the 1980's, IRRC issued studies on the advent
of renewable energy and utility energy efficiency programs. In 1992,
IRRC published a book written by me on business and investment
responses to climate change.
Climate change is playing an increasingly important role in capital
investment decisions, especially for the electric power industry. Our
nation's electricity providers account for nearly 40 percent of
America's and 10 percent of the world's manmade CO<INF>2</INF>
emissions. Addressing global warming necessarily involves this
industry. Companies and investors that ignore this fact do so at their
own peril.
The question is not whether there will be CO<INF>2</INF> controls
on power plant emissions, but when. Investors need more disclosure and
guidance on this issue. Congress can help by passing legislation that
enables utilities and investors to plan effectively for the future and
reduce prevailing uncertainties.
Need for more corporate disclosure and investor certainty
Climate change is the greatest environmental challenge facing the
electric utility industry. Yet many companies still hardly acknowledge
the issue in their disclosure statements to investors. At best,
companies say CO<INF>2</INF> emissions controls could have a material
impact on their financial condition, but cannot gauge the magnitude of
the effect. At worst, they say virtually nothing at all.
Investors are left to wonder whether this paucity of disclosure
reflects a lack of guidance and foresight, or a reluctance to
acknowledge the strategic and material risks posed by climate change.
Neither answer is acceptable to investors.
Electric utilities are committing tens of billions of dollars to
upgrade their coal-fired power plants and install modern pollution
control equipment. Yet these investments do nothing to address carbon
dioxide emissions. The most expensive climate change response strategy
will be to institute CO<INF>2</INF> emissions controls after investing
in equipment to control sulfur dioxide, nitrogen oxide and mercury
emissions. A more prudent and cost-effective approach would be to
consider these four emissions sources together as part of an integrated
strategy.
Consider what James Rogers, Chairman and CEO of Cinergy Corp., one
of the nation's largest coal-burning utilities, told this committee 2
years ago. Chairman Rogers said: ``Who will make a decision to invest a
billion dollars in a new coal plant if you can only guess about future
regulation? [A] new power plant bill that fails to address
CO<INF>2</INF> will be as dated in 5 years as current law is today.''
Investors have raised this very issue with electric utilities over
the last 10 years through the filing of shareholder resolutions. With
mounting support from large pension systems and endowments, shareholder
support for these resolutions has increased dramatically. In the 2003
annual meeting season, the average support level for climate change
disclosure resolutions averaged almost 25 percent at three of the
nation's largest electric utilities AEP, Southern and TXU. No other
type of proposal in the 32-year history of shareholder activism on
social and environmental issues has garnered this level of investor
support. Such institutional backing is consistent with voting trends
that IRRC is seeing across most industries on the global warming issue.
(See Figure 1.)
Corporate governance climate change connection
Utilities are under pressure from many quarters to address climate
change. States are enacting legislation to fill the policy vacuum at
the Federal level. Overseas, the Kyoto Protocol is poised to enter into
force, affecting U.S. utilities and other multinationals with
operations abroad. The Bush Administration is pressing for more
voluntary corporate commitments to control greenhouse gas emissions.
What can utilities do to respond to these pressures? And can you do
to help them?
In terms of what utilities and their investors can do for
themselves, IRRC in a soon-to-be-released report commissioned by CERES
finds that companies can integrate climate change into good governance
practices. Our study lists 14 specific actions. I highlight three
vitally important ones here:
<bullet> First, companies should provide regular assessments of
the climate change issue to shareholders, based on systematic board
reviews of company risks and opportunities. In place of blanket
statements in securities filings that climate change poses
undeterminable material risks, at a minimum companies should identify
the risk factors and parameters involved in board assessments.
<bullet> Second, companies need to set CO<INF>2</INF> emissions
baselines and provide annual emissions data by which investors can
gauge prevailing emissions trends. Utilities have been reporting such
data to the U.S. Environmental Protection Agency for 10 years. They
should make this information directly available to shareholders as
well. (Some are already doing so.)
<bullet> Most important, utilities should be making forward-
looking disclosures of their CO<INF>2</INF> emissions. As an industry,
electric utilities have pledged to reduce the carbon intensity of their
emissions by 3 to 5 percent by 2012. But actual emissions projections
and the effects of proposed CO<INF>2</INF> controls vary substantially
from company to company, and such information typically is not shared
with investors. (See the attached IRRC Proxy Issues Reports on Southern
Company and TXU Corp. as examples.) Investors cannot begin to make
meaningful evaluations of the potential impacts of CO<INF>2</INF>
legislation on their portfolio holdings until they have access to such
forward-looking information.
Congress can facilitate this disclosure process by requiring
utilities and other major carbon emitters to report not only past
emissions data, but also future projections in securities filings. To
be fully transparent in this disclosure, aggregate emissions data as
well as emissions intensity ratios should be provided.
The most helpful thing this Congress can do, however, is to
establish once and for all that carbon dioxide is an emissions source
that will be controlled. Many investors see this coming. Regardless of
the targets and timetables, this act alone would provide essential
guidance for investors and company directors that have put climate
change on their corporate governance agenda.
What has made this issue so difficult to address is a gap in
governance decisionmaking. A CEO typically looks out only three to 5
years when making a big capital investment, or about as long as he or
she normally serves in office. The investment planning horizon for a
long-lived asset like a power plant may extend up to 15 years. But the
power plant will operate for 30 years or more. Carbon dioxide emissions
from that power plant will stay in the atmosphere for 100 years or more
long after the CEO and even the plant itself is retired. (See Figure
2.)
Institutional investors suffer the consequences of this governance
gap. e are the ones entrusted with pension, insurance and endowment
assets designed to span generations. These investors have a fiduciary
duty to advance governance reforms to ensure the long-term viability of
these assets and the economy as a whole. As our nation's elected
representatives, you play a complementary role and are in a position to
bridge this governance gap.
A more detailed treatment of these issues appears in the
forthcoming IRRC report commissioned by CERES, Climate Change and
Corporate Governance: Making the Connection. Excerpts are attached to
my written testimony. They include profiles of the top five carbon
emitting investor-owned electric utilities. These profiles illustrate
the wide divergence in board oversight and current reporting mechanisms
used by these companies and demonstrate the need for a more concerted
approach. Thank you for this opportunity to testify. I am happy to
answer your questions and assist you in any way I can.
__________
IRRC Social Issues Service, 2003 Company Report--J2
SUMMARY
Resolution
RESOLVED: That the Board of Directors report by August 2003 to
shareholders on (a) the economic risks associated with the Company's
past, present and future emissions of carbon dioxide, sulfur dioxide,
nitrogen oxide and mercury emissions, and the public stance of the
company regarding efforts to reduce these emissions and (b) the
economic benefits of committing to a substantial reduction of those
emissions related to its current business activities (i.e., potential
improvement in competitiveness and profitability).
Similar resolution last year? No
Proponents
Benedictine Sisters Charitable Trust (200 shares), Congregation of
the Sisters of Charity of the Incarnate Word and Congregation of the
Holy Cross, Southern Province (70). The proponents are church groups
affiliated with the Interfaith Center on Corporate Responsibility.
At Issue/New Developments
TXU is the nation's seventh largest investor-owned electric
utility, with more than 19,000 megawatts of generating capacity in
Texas. Largely reliant on natural gas and coal, TXU is the 5 industry
emitter of carbon dioxide, accounting for 3.2 percent of U.S.
utilities' CO<INF>2</INF> emissions in 2000, according to an
independent benchmarking study. TXU also is a large industry emitter of
sulfur dioxide and nitrogen oxides pollutants that contribute to acid
rain, smog and human health problems. Management opposes the requested
report as being ``unreasonably speculative with respect to any future
emissions reductions'' of these pollutants.
TXU is making substantial investments in pollution control
technology to comply with the Clean Air Act. Management does not say
what portion of its overall capital expenditures are being spent to
meet these requirements, however. TXU notes in its 2002 Form 10-K that
a ``significant portion'' of its generating fleet was constructed
``many years ago'' and ``may require significant capital expenditures''
as well as ``periodic upgrading and improvement.'' Future government
controls of CO<INF>2</INF> emissions could threaten the economic
viability of some of TXU's planned power plant retrofits.
New developments at the company: In October 2002, TXU announced
plans to terminate and write off its European operations. TXU's stock
plunged on the news. The company and its managers now are defendants in
several derivative shareholder lawsuits.
Economic Impact on the Company
While TXU is making large investments to meet Clean Air Act
requirements likely totaling hundreds of millions of dollars a year
such investments will not reduce TXU's CO<INF>2</INF> emissions. New
government controls on such emissions could render some of its power
plant upgrades uneconomic. Management does not provide shareholders
with a clear sense of how much it is spending on pollution control, nor
does it indicate whether future CO<INF>2</INF> emissions controls would
have a material impact on the company. The requested report seeks more
definitive answers to these questions.
I. TXU CORP. AND GLOBAL CLIMATE CHANGE
TXU Corp. is the nation's seventh largest investor-owned electric
utility, serving 5 million electricity and gas customers in the United
States and Australia. (TXU is working with creditors to sell its
operations in Europe.) TXU also provides wholesale energy sales,
merchant energy trading and risk management, energy-related services
and telecommunications.
TXU owns or leases 19,000 megawatts of generating capacity in
Texas, where 2.7 million of its electricity customers are located.
(TXU's Texas operations are subject to competition, beginning in 2002.)
TXU also sells about 200 billion cubic feet of natural gas annually to
1.4 million customers. TXU Australia serves about 1 million electricity
and gas customers, and owns and operates 1,280 MW of generating
capacity. As of Dec. 31, 2002, TXU employed 14,600 people.
Financial Performance
------------------------------------------------------------------------
% change to
2002 2001 2002
------------------------------------------------------------------------
Revenues (in billions $)......... 10.034 10.049 (0.1)
Net income (in millions $)....... (4,232) 655 NA
------------------------------------------------------------------------
2002 financial results: TXU lost $4.2 billion in 2002, and the
company's book value was cut in half. On a per share basis, TXU's 2002
loss was $15.23 per share, compared with earnings of $2.52 per share in
2001. This most difficult year in the company's 121-year history
included a decision last October to discontinue and write off its
European operations. On Oct. 12, management announced it was cutting
the company's common stock dividend by 80 percent, to 12.5 cents per
share, in response to capital market concerns regarding the liquidity
of TXU Corp. and its U.S. and Australian subsidiaries. TXU and its top
executives now are defendants in several derivative shareholder
lawsuits, alleging (among other things) false and misleading statements
in company securities filings, breach of fiduciary duty, abuse of
control, mismanagement, waste of corporate assets, and breach of the
duties of loyalty and good faith.
Investment Performance
------------------------------------------------------------------------
Total returns ( percent)
Data as of 12-31-2002 --------------------------------------
1 yr 3 yr 5 yr
------------------------------------------------------------------------
TXU Corp......................... -58.6 -38.1 -40.8
S&P 500 index.................... -22.1 -37.6 -2.9
Industry group No information
Industry description: Electric
Utilities No. of companies in
group: 200......................
------------------------------------------------------------------------
Source: Compustat
Environmental expenditures and liability: TXU does not provide a
breakdown of its expenditures for capital projects related to the
environment, nor does it provide a projection of future such
expenditures. In its 2002 Form 10-K, management notes that a
``significant portion of TXU Corp.'s facilities was constructed many
years ago. In particular, older generating equipment, even if
maintained in accordance with good engineering practices, may require
significant capital expenditures to keep it operating at peak
efficiency. This equipment is also likely to require periodic upgrading
and improvement.''
TXU reported a total of $996 million in capital expenditures in
2002, down from $1.248 billion in 2001. Total capital expenditures are
expected to be $1.1 billion in 2003, substantially all of which are for
maintenance and organic growth of existing operations.
Under the Clean Air Act and State electric utility restructuring
legislation, ``grandfathered'' power plants (built before 1978) must
achieve a 50 percent reduction in nitrogen oxides (NOx) emissions and a
25 percent reduction in sulfur dioxide emissions by May 1, 2003. This
requirement will be met through emission reductions at these facilities
or through the purchase of credits from other permitted facilities as
an alternative to achieve the same reductions. TXU reports in its 2002
Form 10-K that it has obtained all of the necessary permits to meet
these requirements, and says it can expect recovery of reasonable
environmental improvement costs as part of the State-approved electric
restructuring plan.
As part of the State Implementation Plan for the Clean Air Act, TXU
also must comply with a requirement calling for an 89 percent reduction
in NOx emissions in the Dallas-Fort Worth ozone non-attainment area and
a similar 51 percent reduction from power plants in East and Central
Texas. TXU says the cost of compliance will be reduced because of the
emission trading provisions in the rules.
TXU and Its Environmental Affairs
Board oversight: TXU's nine-member board of directors has seven
standing committees. No board committee is charged with explicit
oversight of the company's environmental affairs. The board of
directors has not conducted a formal review of the climate change
issue. The company has not set targets to reduce carbon dioxide or
other greenhouse gas emissions, but says it strives to develop and
implement workable and economically viable emissions reduction
projects.
Staff level: TXU employs about 150 environmental, health and safety
professionals. The top EHS executive is Paul Plunket, Executive Vice
President, who reports to Tom Baker, TXU Corp. Executive Vice President
and President of TXU's Oncor energy distribution business. There is one
reporting level between Plunket and the CEO of the company. TXU has
conducted company-wide environmental audits since 1987; audits of major
facilities are conducted every year. Its business units are benchmarked
against the ISO 14001 environmental management system standard. The
audit committee of the board of directors reviews audit results; audit
summaries are not made pubic. TXU says environmental performance is a
factor in the compensation of top executives, plant managers and other
employees.
TXU is one of three U.S. utility companies listed on the Dow Jones
Sustainability Index. In June 2002, Innovest Strategic Value Advisors,
Inc. recognized TXU as the fourth highest-ranking company out of 28
utilities evaluated based on environmental risk factors, enviornmental
management capacity and environmental opportunity factors. Innovest
also found that TXU was below the industry average in terms of its
exposure to a possible carbon tax relative to its stock market
capitalization (as of Jan. 1, 2000).
Environmental principles and reporting: TXU has issued an
environmental report annually since 1991. (The report and its Statement
of Environmental Principles is available in printed form and on the
Internet at www.txucorp.com/globcit/envcom/globalreport/principles.)
The latest report includes a brief policy statement on climate change
and carbon savings/offsets achieved in the United States and Australia.
The report also includes statistics on TXU's sulfur dioxide, nitrogen
oxide and carbon dioxide emissions rates as compared to national
electric utility averages and the company's investments in wind energy.
Under the Clean Air Act Amendments of 1990, TXU is required to
collect hourly emissions data on carbon dioxide, nitrogen oxides and
sulfur dioxide. The power plant emissions data are recorded in a data
base maintained by the U.S. Environmental Protection Agency. The
company also provides a summary of annual mercury emissions from its
lignite/coal generating facilities on its website and annually reports
these emissions to the EPA, which makes the information publicly
available on the Internet in the Community Right-to-Know data base.
TXU and Global Climate Change
As part of its Statement of Environmental principles, TXU says it
will ``continue to take prudent steps to voluntarily reduce our
emissions of greenhouse gases and to promote carbon sequestration
programs.'' It says it has set ``challenging sustainability targets in
the medium and long term'' that include increased use of renewable
fuels, reducing greenhouse gas emissions through more efficient
electricity production and use, assisting carbon sequestration through
reforestation and other technologies, and actively promoting
conservation and load management programs. Quantitative targets have
not been set, however.
In its 2002 annual report, TXU says it ``supports a balanced,
flexible, comprehensive and international approach to the global
climate change issue.'' It does not comment on the Kyoto Protocol, an
international agreement that seeks a 5 percent cut in industrialized
nations' CO<INF>2</INF> emissions below 1990 levels by 2012. In its
2002 Form 10-K, management says, it is ``unable to predict the impact
of the [Bush] Administration proposal or related legislation'' on
climate change.
Carbon dioxide emissions: As noted above, TXU reports information
to government agencies about its CO<INF>2</INF> emissions, but it does
not make this information readily available to shareholders. Through
use of Continuous Emissions Monitors on its major power plants, TXU
reported carbon dioxide emissions equal to 66.8 million metric tons
(MMT) in 2000. Separately, TXU told IRRC that its operations in the
United States and Australia emitted 72.8 MMT of CO<INF>2</INF> in 2001.
TXU also collects data on emissions of two other greenhouse gases,
methane and sulfur hexafluoride.
According to an independent benchmarking study conducted by the
Natural Resources Defense Council, TXU was the fifth largest utility
emitter of carbon dioxide in 2000, accounting for 3.2 percent of U.S.
utilities' CO<INF>2</INF> emissions. That year, natural gas provided 61
percent of its generation; coal/lignite, 28 percent; and nuclear, 11
percent. TXU's high ranking in the benchmarking study was mainly a
function of its large generating base, totaling more than 19,000
megawatts of capacity. Because its main source of fuel is natural gas
(which has a lower carbon content than coal or oil), it ranked 56th out
of 100 utilities studied in terms of CO<INF>2</INF> emissions per
megawatt-hour (MWh) of generation, and it ranked 71st out of 100 in
terms of CO<INF>2</INF> emissions per MWh of generation from fossil
energy plants. Other utilities with lower rankings (i.e., closer to 1)
had higher CO<INF>2</INF> emissions per unit of power produced.
TXU reported in its 2001 environmental report that its
CO<INF>2</INF> emissions rate in 2000 was 11 percent below the national
average (based on tons of CO<INF>2</INF> emitted per million Btus of
energy produced). Similarly, its sulfur dioxide and nitrogen oxides
emissions rates were 33 and 15 percent below the national average,
respectively. The NRDC benchmarking study reported that TXU ranked
fifth in terms of total utility emissions of nitrogen oxides in 2000,
and 12th in terms of sulfur dioxide emissions.
Emissions savings: TXU has been a member of the U.S. Department of
Energy's Climate Challenge program since 1995, and it has reported
emissions savings under the Section 1605(b) reporting program
established by the 1992 Energy Policy Act. TXU reported savings/offsets
of 23 million metric tons of CO<INF>2</INF> equivalent in 2001 and a
total of 196 MMT of savings since 1991 more than any other U.S.
investor-owned electric utility. TXU says its CO<INF>2</INF> emissions
would have been 28 percent higher in 2001 were it not for savings and
offsets achieved since 1990.
Most of TXU's savings are from operation of its Comanche Peak
nuclear units, which came on line in the early 1990's. The Energy
Policy Act allows utilities to count as savings any new generation from
nuclear power plants that began operation or increased their output
after 1990. (Comanche Peak is the only U.S. investor-owned nuclear
plant completed after 1990.) Other sources of TXU's emissions savings
include heat rate improvements in its fossil energy plants, demand-side
management programs, methane recovery, sulfur hexafluoride reduction
programs and tree planting.
In 2001, TXU reported 527,400 tons of emissions savings through its
demand-side management programs. The company has planted more than 20
million trees since the early 1970's, including 1.3 million in 2002.
TXU Australia reported savings/offsets of 230,000 tons in 2001. TXU
Australia is expected to achieve a 16 percent reduction in its total
greenhouse gas emissions by 2004.
Renewable energy: TXU says it encourages ``research and development
of more efficient, environmentally benign sources of energy and,
whenever warranted by market opportunity, to offer customers the
benefits of energy produced from renewable resources.'' TXU offers a
``green pricing'' option in each jurisdiction it serves. TXU has
contracts for 382 megawatts of wind power in Texas, making it the
fourth largest purchaser of wind power in the United States. It also
has contracts for approximately 20 MW of wind power in Australia and 30
MW of hydro and landfill gas generating capacity. TXU says it is also
evaluating photovoltaic, solar thermal, waste-to-energy and biomass
technologies.
II. PROPONENTS' POSITION
This is the second time that shareholder proponents affiliated with
the Interfaith Center on Corporate Responsibility have submitted a
global warming resolution to TXU Corp. In 1997, a resolution filed with
its predecessor, Texas Utilities, was withdrawn. TXU was targeted again
this year because it has been identified as one of the top five carbon-
emitting investor-owned electric utilities. The proponents met TXU's
corporate secretary and members of the company's environmental staff in
March 2003. Though the discussions were amiable, the proponents elected
not to withdraw the resolution on the basis that TXU was not willing to
provide sufficient forward-looking information on the climate change
issue.
The resolved clause of the resolution has two elements. It asks the
company's board of directors to report on:
(a) the economic risks associated with the Company's past, present
and future emissions of carbon dioxide, sulfur dioxide, nitrogen oxide
and mercury emissions, and the public stance of the company regarding
efforts to reduce these emissions and (b) the economic benefits of
committing to a substantial reduction of those emissions related to its
current business activities (i.e., potential improvement in
competitiveness and profitability).
In a presentation by Ceres, a coalition working closely with the
Interfaith Center on the 2003 shareholder campaign, arguments made in
favor of the global warming resolution filed with electric utilities
are as follows:
1. Health and environmental risks from pollutants: Electric
utilities account for two-thirds of the nation's sulfur dioxide
emissions, one-third of its mercury emissions and nearly one-quarter of
its nitrogen oxides emissions. These pollutants contribute to asthma,
lung and heart disease and mercury bioaccumulation in humans, and cause
extensive damage to the environment, including acid rain, smog and
mercury bioaccumulation in fish and other species. At the same time,
electric utilities account for 37 percent of the nation's carbon
dioxide emissions, the main gas tied to global warming.
2. Government regulation of these pollutants: Emissions of sulfur
dioxide and nitrogen oxides are regulated under the Clean Air Act. This
Federal law will require substantial additional reductions of these
emissions as well as mercury in the years ahead. Utilities will have to
make major new investments in pollution control technology, but this
technology will not control carbon dioxide emissions.
3. Risks of not factoring in carbon dioxide controls: The
proponents believe domestic regulatory controls of CO<INF>2</INF> are
inevitable. Two States (New Hampshire and Massachusetts) have already
passed laws restricting utility emissions of CO<INF>2</INF>, and
Federal legislation has been introduced as well. At the international
level, the Kyoto Protocol is likely to go into effect this year
(although the Bush Administration has pulled the United States out of
the agreement).
According to studies cited by the proponents, the most expensive
choice utilities could make is to retrofit existing fossil energy
plants with new pollution control equipment and then have to reduce
CO<INF>2</INF> emissions from these plants. The proponents argue that
utilities should factor future CO<INF>2</INF> controls into their
investment strategies now, since it could alter decisions about which
power plants to retrofit with new pollution control equipment and which
to replace with new, cleaner energy sources.
4. Need for greater disclosure by utilities: By some estimates
cited by the proponents, many electric utilities face a ``carbon
exposure'' of between 10 and 35 percent of their total market
capitalization. (In other words, the cost of achieving carbon dioxide
emission controls as specified by the Kyoto Protocol equals 10 to 35
percent of the current value of their stock.) Many factors go into
making this calculation, including a utility's generating assets, fuel
mix, installed pollution control technologies and whether it is
competing in a deregulated electricity market. ``Investors cannot
assess this risk without more disclosure'' from utilities, according to
Ceres.
That is why the proposal calls on management to conduct a thorough
economic assessment of the risks and benefits of achieving substantial
emissions reductions of the four pollutants listed in the proposal.
``We believe that taking early action on reducing emissions and
preparing for standards could better position companies over their
peers, including being first to market with new high-efficiency and
low-emission technologies,'' the proponents argue. ``Changing consumer
preferences, particularly those relating to clean energy, should also
be considered. Inaction and opposition to emissions control efforts
could expose companies to reputation and brand damage, and regulatory
and litigation risk,'' it concludes.
III. MANAGEMENT'S POSITION
Management opposes the resolution seeking more disclosure on the
company's efforts to address climate change. It argues that the
resolution would duplicate company reporting activities, increase costs
and ``require unreasonable speculation with respect to the economic
risks and benefits of emissions and future emission reductions.''
Management says it complies with government requirements to monitor
and annually report to the Environmental Protection Agency emissions of
carbon dioxide, sulfur dioxide, nitrogen oxides and mercury. The public
can gain access to this information through government Internet sites.
TXU also publishes an annual environmental report that includes
information comparing its sulfur dioxide, nitrogen oxide and carbon
dioxide emissions rates to national electric utility averages. The
report also highlights its voluntary reductions in carbon dioxide
emissions and other greenhouse gases and its investments in wind
energy. Management says its ``public stance regarding efforts to reduce
these emissions is embodied in its Statement of Environmental
Principles and is summarized in the company's annual environmental
report.''
Management says additional information on the environmental risks
associated with emissions is available in public reports filed with the
Securities and Exchange Commission. ``The reports address capital
construction costs for sulfur dioxide and nitrogen oxide emissions
control equipment necessary under current regulations, certain material
risks associated with environmental compliance, and certain legislative
and regulatory initiatives that may, in the Company's determination,
materially impact its operations,'' according to the proxy statement.
Finally, in response to the proponents' request for more
information on the economic risks and benefits of future emissions
controls and efforts to reduce these emissions, management says it
``cannot accurately predict the outcome of future Federal or State
legislative actions to regulate emissions'' and that the requested
report would be ``unduly speculative.''
IV. IRRC ANALYSIS
SmartVoter Guidelines
Voting guidelines for this resolution are presented under issue
number 3425 in IRRC's SmartVoter product.
Questions Raised
<bullet> Is TXU reporting adequately on the global warming issue?
<bullet> Could TXU do more to respond to this issue?
Adequacy of reporting: The proponents believe that management
should provide shareholders with more information on the company's
response to global warming. In particular, the proponents want
management to lay out the costs and benefits of reducing greenhouse gas
emissions as it invests in other pollution controls at its fossil-fired
generating facilities. Management says it is already making information
on its emissions publicly available and that the additional information
requested by the proponents would be ``unduly speculative.''
Management can legitimately say that it is providing some
information to shareholders on this issue:
<bullet> Disclosure: It makes reference to the global warming
issue in its 2002 annual report and Form 10-K.
<bullet> Emissions: Its 2001 environmental report provides
comparative statistical information on its emissions of carbon dioxide,
sulfur dioxide and nitrogen oxides, and its efforts to reduce these
emissions.
<bullet> Data bases: Its proxy statement cites government data
bases where shareholders can find more detailed information on the
company's emissions.
Shareholders who wish to conduct more than a cursory analysis of
the company's response to global warming and its exposure to risks from
controlling emissions may find management's level of disclosure
inadequate, however. Here are some examples:
<bullet> Disclosure: Management says in its 2002 annual report
that it ``supports a balanced, flexible, comprehensive and
international approach to the global climate change issue.'' But it
does not make any mention of the Kyoto Protocol, the pending
international agreement to address climate change, or indicate whether
the company has any targets to reduce its greenhouse gas emissions. The
Form 10-K statement also sheds little light on these questions. It says
only that management is ``unable to predict the impact of the [Bush]
Administration proposal or related legislation'' on climate change.
<bullet> Emissions: Management says in its environmental report
that its emissions of CO<INF>2</INF>, SO<INF>2</INF> and NOx are below
the national average per unit of electricity produced. But it does not
provide absolute emissions figures, which reveal the company to be one
of the nation's largest emitters of each of these substances. Among
U.S. electric utilities in 2000, TXU ranked fifth in CO<INF>2</INF> and
NOx emissions, and 12th in SO<INF>2</INF> emissions.
<bullet> Data bases: Management makes reference to government data
bases where its aggregate emissions figures can be found. It says in
its 2003 proxy statement that such data bases demonstrate the company's
``support for, and progress toward, voluntary reductions of greenhouse
gas emissions.'' But management does not provide links or Internet
addresses to these government sites, which would assist interested
parties in tracking down this information. Moreover, management does
not explain why it omits aggregate emissions figures in its own reports
to shareholders and instead normalizes the data based on electricity
production. Providing aggregate data would enable shareholders to
better scrutinize management's claims of progress toward absolute
emissions reductions.
<bullet> Financial implications of regulatory controls: Finally,
management provides very little information to shareholders about its
capital expenditures related to environmental protection. It provides
figures for recent and projected total capital expenditures for the
company. It also notes that many of its power plants have had to obtain
permits to come into compliance with new Clean Air Act standards. But
it does not break out how much of its capital expenditures are being
used for such environmental purposes. Separately in its Form 10-K,
management warns that a ``significant portion of TXU Corp.'s facilities
was constructed many years ago'' and that these facilities ``may
require significant capital expenditures'' as well as ``periodic
upgrading and improvement.'' But it attaches no dollar figures to such
warnings. Shareholders are left to ponder whether these expenditures
may be material to the company's operations and future financial
condition.
Could TXU be doing more to respond to this issue? From the
preceding discussion, it is clear that TXU could be doing more to
enlighten shareholders about the risks and opportunities posed by
efforts to reduce greenhouse gas emissions.
<bullet> Disclosure: Management could state in its annual report
whether or not it believes the Kyoto Protocol reflects a ``balanced,
flexible, comprehensive and international approach'' to the global
climate change issue. It could list in its Form 10-K examples of issues
and uncertainties that render it ``unable to predict the impact'' of
climate change proposals, and provide at least a broad outline of the
possible magnitude of such impacts.
<bullet> Emissions and data bases: Management could provide links
or website information to government data bases to which it submits
aggregate emissions data. Better still, it could provide this
information in its own company reports. Best of all, it could provide
historic and projected emissions data so that shareholders can judge
for themselves how well the company is doing in ``support for, and
progress toward, voluntary reductions of greenhouse gas emissions.''
<bullet> Financial implications of regulatory controls: Management
could provide a breakdown of its capital expenditures related to
environmental protection as most other companies do in their Form 10-K
reports. In particular, management could provide information on its
past investments and future projections to keep its fossil energy
plants in compliance with the Clean Air Act. In order to satisfy the
proponents' request regarding the effects of cutting greenhouse gas
emissions, management also could give some indication of how efforts to
achieve the goals of the Kyoto Protocol or comparable U.S. legislation
might affect its investments in retrofitting and upgrading its older
plants.
In the final analysis, shareholders who believe the global warming
issue does not yet pose a major policy and financial concern for TXU or
who agree with management that further statements on the issue would be
``unduly speculative'' will be inclined to vote against this proposal.
Shareholders who believe the issue does pose concerns despite the
legislative uncertainties that remain will be inclined to vote for the
proposal. This latter group of shareholders may conclude, in fact, that
the uncertain financial consequences of still-evolving response
strategies to climate change makes the issuance of a forward-looking
report all the more valuable.
______
EXCERPT FROM TXU CORP.'S PROXY STATEMENT
Shareholder Proposal Related To An Environmental Report:
``electric utility resolution
WHEREAS:
In 2001 The Intergovernmental Panel on Climate Change concluded
that ``there is new and stronger evidence that most of the warming
observed over the last 50 years is attributable to human activities.''
In 2001 the National Academy of Sciences stated that the ``degree
of confidence in the IPCC assessment is higher today than it was 10, or
even 5 years ago there is general agreement that the observed warming
is real and particularly strong within the past 20 years.''
The United States government's ``Climate Action Report 2002,''
concluded that global climate change may harm the country. The report
highlights risks to coastal communities in the Southeast due to sea
level rise, water shortages throughout the West, and increases in the
heat index and frequency of heat waves.
In July 2002, 11 Attorneys General wrote President Bush, outlining
their concern over the U.S. Climate Action Report's failure to
recommend mandatory reductions of greenhouse gas emissions. They
declared that States are being forced to fill the Federal regulatory
void through State-by-State regulation and litigation, increasing the
ultimate costs of addressing climate change. They urged a
reconsideration of his regulatory position, and adoption of a
``comprehensive policy that will protect both our citizens and our
economy.''
U.S. power plants are responsible for about two-thirds of the
country's sulfur dioxide emissions, one-quarter of its nitrogen oxides
emissions, one-third of its mercury emissions, approximately 40 percent
of its carbon dioxide emissions, and 10 percent of global carbon
dioxide emissions.
Scientific studies show that air pollution from U.S. power plants
causes tens of thousands of premature deaths and hospitalizations,
hundreds of thousands of asthma attacks, and several million lost
workdays nationwide every year from pollution-related ailments.
Standards for carbon dioxide emissions and other air pollutants are
emerging across multiple fronts. Ninety-six countries have ratified the
Kyoto Protocol, requiring carbon dioxide reductions. Massachusetts and
New Hampshire have enacted legislation capping power plants emissions
of carbon dioxide and other air pollutants. In June 2002 the Senate
Environment and Public Works Committee passed a bill seeking to cap
emissions from the generation of electric and thermal energy.
We believe that taking early action on reducing emissions and
preparing for standards could better position companies over their
peers, including being first to market with new high-efficiency and
low-emission technologies. Changing consumer preferences, particularly
those relating to clean energy, should also be considered.
Inaction and opposition to emissions control efforts could expose
companies to reputation and brand damage, and regulatory and litigation
risk.
RESOLVED: That the Board of Directors report (at reasonable cost
and omitting proprietary information) by August 2003 to shareholders on
(a) the economic risks associated with the Company's past, present and
future emissions of carbon dioxide, sulfur dioxide, nitrogen oxide and
mercury emissions, and the public stance of the company regarding
efforts to reduce these emissions and
(b) the economic benefits of committing to a substantial reduction
of those emissions related to its current business activities (i.e.
potential improvement in competitiveness and profitability).''
The Board of Directors recommends a vote AGAINST this proposal for
the following reasons:
The Company believes that adoption of the shareholder proposal
would unnecessarily duplicate ongoing Company reporting activities,
would needlessly increase costs and require unreasonable speculation
with respect to the economic risks and benefits of emissions and future
emission reductions.
The Company routinely reports to regulatory agencies and the public
regarding significant environmental matters. Since 1991, the Company
has voluntarily published an annual environmental report, available in
printed form and on the Internet, which sets forth its Statement of
Environmental Principles and presents statistics on the Company's
sulfur dioxide and nitrogen oxide emissions rates as compared to
national electric utility averages, voluntary reductions in greenhouse
gas emissions (including carbon dioxide), and investments in zero-
emission wind energy.
The Company also annually reports emissions of sulfur dioxide,
nitrogen oxide and carbon dioxide, which are continuously monitored at
the generating facilities as required by law, to the State and Federal
environmental agencies, including the U.S. Environmental Protection
Agency (EPA), which makes this information publicly available through
the Emissions Scorecard data base on the Internet.
The Company also provides a summary of annual mercury emissions
from its lignite/coal generating facilities on its web page and
annually reports these emissions to the EPA, which makes the
information publicly available on the Internet in the Community Right-
to-Know data base.
The Company's public stance regarding efforts to reduce these
emissions is embodied in its Statement of Environmental Principles and
is further reflected in its record of compliance with State and Federal
sulfur dioxide and nitrogen oxide emissions requirements and
reductions, which is summarized in the Company's annual environmental
report. The Company's public support for, and progress toward,
voluntary reductions of greenhouse gas emissions (including carbon
dioxide) is reported annually to the U.S. Department of Energy, which
makes the information available in the Public Use Data base on the
Internet.
The Company routinely discloses the economic risks associated with
emissions in its public reports filed with the Securities and Exchange
Commission. The reports address capital construction costs for sulfur
dioxide and nitrogen oxide emissions control equipment necessary under
current regulations, certain material risks associated with
environmental compliance, and certain legislative and regulatory
initiatives that may, in the Company's determination, materially impact
its operations.
In its normal course of business, the Company evaluates possible
additional emissions reductions beyond those required by State and
Federal regulations. The Company believes that a more detailed report
on the economic risks and benefits of emissions and emissions
reductions would be unreasonably speculative with respect to any future
emissions reductions. For example, the Company cannot accurately
predict the outcome of future Federal or State legislative actions to
regulate emissions.
In summary, adoption of the shareholder proposal would
unnecessarily increase costs and duplicate ongoing Company reporting
activities.
The Board of Directors Recommends a Vote AGAINST This Shareholder
Proposal.
______
[Social Issues Service, May 6, 2003]
IRRC, 2003 Company Report J2
Southern Co.
Global Climate Change
(by Doug Cogan)
2003 Investor Responsibility Research Center
Proxy Statement Proposal Related IRRC report 1. Elect directors CG
Proxy Report 2. Ratify amendment of by-laws permitting book-entry of
shares CG Proxy Report 3. SP-Report on greenhouse gas emissions SI
Background Rpt. J2
Summary
Resolution
RESOLVED: That the Board of Directors report by August 2003 to
shareholders on (a) the economic risks associated with the Company's
past, present and future emissions of carbon dioxide, sulfur dioxide,
nitrogen oxide and mercury emissions, and the public stance of the
company regarding efforts to reduce these emissions and (b) the
economic benefits of committing to a substantial reduction of those
emissions related to its current business activities (i.e., potential
improvement in competitiveness and profitability).
Similar resolution last year? No
Shareholder proposals asking Southern to report on the costs and
liabilities of climate change were filed and withdrawn in 1997, 1999
and 2002. A proposal on developing renewable energy was supported by
9.5 percent of shares voted in 2001 and 9.2 percent in 2002.
Proponents
Sisters of Charity of St. Elizabeth (100 shares); United Church
Foundation (23,400 shares); Sisters of St. Dominic, Caldwell, N. J.
(100 shares); affiliated with the Interfaith Center on Corporate
Responsibility.
At Issue/New Developments
Southern Company is the nation's second largest electric utility,
with 37,000 megawatts of generating capacity. Coal represents about
two-thirds of Southern's fuel mix, making it the 2 industry emitter of
carbon dioxide, accounting for 6.4 percent of U.S. utilities'
CO<INF>2</INF> emissions in 2000, according to an independent study. It
is also the 2 industry emitter of sulfur dioxide, nitrogen oxides and
mercury. Southern plans to spend more than $1 billion by 2004 for
nitrogen oxides emissions controls at its coal-fired plants. It expects
to spend an additional $4 billion or more by 2015 to further reduce
emissions of sulfur dioxide, nitrogen oxides and mercury. Government
efforts to control CO<INF>2</INF> emissions could call into question
the economic feasibility of some of these pollution control efforts.
Southern has provided projections of its power generation and emissions
through 2020. It estimates that its power generation will increase 45
percent between 2000 and 2020 and that its CO<INF>2</INF> emissions
will increase 16 percent. Management says it is focused on ``addressing
emissions of greenhouse gases such as CO<INF>2</INF>.''
Economic Impact on the Company
Because electricity generation accounts for nearly two-fifths of
the nation's CO<INF>2</INF> emissions, the principal greenhouse gas,
imposition of new government controls on CO<INF>2</INF> could
compromise the future value of Southern's planned investments in
pollution control equipment at many of its coal-fired power plants.
Southern says in its Form 10-K report that the ``cost impacts of such
[CO<INF>2</INF>] legislation would depend upon the specific
requirements enacted.'' The requested report asks management to provide
a more detailed explanation of the costs and benefits of the company's
pollution control strategy, given that there may be material risks to
the company and its shareholders if that strategy fails to properly
anticipate possible future CO<INF>2</INF> emissions controls.
I. SOUTHERN CO. AND ITS ENVIRONMENTAL AFFAIRS
Southern Company is the nation's second largest electric utility,
serving 4 million customers in Georgia, Alabama, Florida and
Mississippi, with 27,000 miles of transmission lines. Its regulated
utility companies Alabama Power, Georgia Power, Gulf Power, Mississippi
Power and Savannah Electric provide nearly 90 percent of earnings. The
remaining portion of Southern's business activities includes wholesale
power generation, a competitive retail natural gas business, energy-
related products and services, fiber optics and wireless
communications, and leveraged leasing activities. Southern employed
26,178 people as of Dec. 31, 2002.
Southern had 34,739 megawatts of owned and leased generating
capacity in its retail system at the end of 2002. Southern Power, its
electric wholesale generation subsidiary, had 1,612 MW of natural gas-
fired generating capacity in commercial operation. Southern Power
expects to have a total of 6,600 MW on-line by the end of 2005.
Southern's generation sources in 2002 were coal, 69 percent; nuclear,
16 percent; natural gas, 12 percent; and hydro, 3 percent. Average fuel
costs in 2002 were 1.61 cents per kilowatt-hour. Southern's retail
electric rates are 15 percent below the national average.
Financial Performance
------------------------------------------------------------------------
% change to
2002 2001 2002
------------------------------------------------------------------------
Revenues (in billions $)......... 10.549 10.155 3.9
Net income (in millions $)....... 1,318 1,262 4.4
------------------------------------------------------------------------
2002 financial results: Southern says its financial performance in
2002 was ``very strong and one of the best in the electric utility
industry.'' Net income of $1.318 billion from continuing operations
increased 17.6 percent over income from continuing operations reported
in 2001. Diluted earnings per share from continuing operations in 2002
were $1.85 per share, up from $1.61 in 2001. Dividends paid per share
on common stock in 2002 were $1.355, up from $1.34 in 2001. The company
had an average of 708 million shares of common stock outstanding in
2002, an increase of 2.7 percent.
Future construction and environmental expenditures: Southern
provides projections for construction expenditures, including
environmental capital expenditures, over the next 3 years. Its
projected construction expenditures are as follows: $2.075 billion in
2003, $2.308 billion in 2004 and $2.354 billion in 2005. Its projected
environmental capital expenditures are $257 million in 2003, $300
million in 2004 and $346 million in 2005. Southern forecasts
electricity demand growth of 3.5 percent a year, and customer growth of
1.5 percent a year.
Investment Performance
------------------------------------------------------------------------
Total returns (percent)
Data as of 12-31-2002 --------------------------------------
1 yr 3 yr 5 yr
------------------------------------------------------------------------
Southern Co...................... 17.6 123.8 124.9
S&P 500 index.................... -22.1 -37.6 -2.9
Industry group................... No data
Industry description: Electric
Utilities No. of companies in
group: 200......................
------------------------------------------------------------------------
Source: Compustat
Southern and Its Environmental Affairs
Board oversight: Southern's 10-member board of directors has five
standing committees. No board committee is charged with explicit
oversight of the company's environmental affairs. The audit committee
is responsible for reviewing environmental compliance audits along with
other regulatory matters affecting the company. The entire board
receives updates on environmental management issues periodically. The
2003 proxy statement makes no reference to environmental issues
discussed by the board of directors.
The board of directors has not conducted a formal review of the
climate change issue. The company has not set targets to reduce carbon
dioxide or other greenhouse gas emissions, but says it is considering
them. It has provided projections of carbon dioxide emissions out to
the year 2020.
Staff level: Southern employs about 250 environmental, health and
safety professionals at the corporate level. The top EHS executive is
Dr. Charles H. Goodman, Senior Vice President, Research and
Environmental Affairs. Goodman reports to Paul Bowers, President,
Southern Co. Generation and Energy Marketing; and Dwight Evans,
President of External Affairs. There is one reporting level between
Goodman and the CEO of the company. Southern says environmental
performance is a factor in the compensation of top executives, plant
managers and other EHS employees.
Southern has conducted company-wide environmental audits since
1992. Audits of major facilities are conducted every one to 2 years,
and are conducted by corporate and facility staff. The audit committee
of the board of directors reviews audit results. Audit summaries are
not made public.
Environmental principles and reporting: Southern issued its first
environmental policy statement in 1992 and its first environmental
report in 1993; it has issued the environmental report periodically
since then. The report includes a climate change policy statement,
summary of greenhouse gas reduction efforts and a projection of future
emissions trends.
Southern's most recent statement on climate change was issued in
August 2000. Among other things, the policy statement says:
<bullet> Climate change is global and long-term in nature.
<bullet> Policies should seek to resolve climate change scientific
uncertainties.
<bullet> Solutions must incorporate unrestricted use of market-
based flexibility mechanism, and consider the broadest range of sources
as well as sinks of greenhouse gases, both domestic and international.
<bullet> Policies must protect a secure, economic and diverse
energy supply, and promote long-term research, development and
dissemination.
<bullet> Public and private partnerships should support
development and commercialization of higher efficiency, lower emitting
power generation technologies.
<bullet> Cost-effective means should be pursued to reduce, avoid
and sequester greenhouse gas emissions.
Southern says in the statement that it is committed to
``establishing and maintaining dialog with public and private interest
groups to expand the understanding of the climate change issue and to
enhance the development and implementation of appropriate climate
change policy.'' The full policy statement is available at: http://
www.southerncompany.com/planetpower.asp.
Global Climate Coalition: Southern Company was a founding member of
the Global Climate Coalition (GCC), which formed in 1989. For more than
a decade, the GCC was the leading industry group opposed to mandatory
greenhouse gas controls and U.S. adoption of the Kyoto Protocol.
Southern was one of five companies that withdrew from the GCC in late
1999 and early 2000. A Southern spokesman told IRRC that the company
was concerned the GCC was ``as strident as its most strident member''
and that Southern had decided not to align itself with other groups on
the climate change issue.
At the time it pulled out of the lobbying group, Southern was
facing a global warming shareholder resolution that highlighted its
membership in the GCC. That resolution subsequently was withdrawn. The
GCC ended its corporate membership program in March 2000, 1 month after
Southern left the group, and it disbanded altogether in January 2002.
Renewable Energy Development
Southern is not optimistic about the prospects for renewable energy
development, especially in its service area. It says on its website
that ``renewable energy is more expensive and sometimes dramatically so
than power generated by fossil fuels than coal or natural gas. Even if
costs weren't a factor, some renewable energy sources aren't available
on a large scale in the Southeast.'' A shareholder proposal filed with
Southern on developing renewable energy was supported by 9.5
percent of shares voted in 2001 and 9.2 percent in 2002.
Southern does offer an ``EarthCents green pricing'' option that
allows customers in Alabama and Mississippi to purchase 100 watt blocks
of renewable energy for $5-6 per month. Similar programs are awaiting
regulatory approval in Georgia and Florida. The energy will come from a
portfolio of sources, including landfill methane, wind and solar power.
In addition, Southern is conducting research on biomass, solar and
landfill methane technologies. For example, Southern is adding
switchgrass (a biomass fuel) at two of its power plants to reduce the
use of coal and related emissions. It has also installed a 250-kW fuel
cell demonstration plant. Fuel cells emit less greenhouse gases
inherently than boilers or engines that provide the same energy.
In its 2002 Form 10-K, Southern acknowledges that commercial
success of fuel cells and renewables would pose a competitive threat to
the company and its shareholders. Management states:
A key element of Southern Company's business model is that
generating power at central power plants achieves economies of scale
and produces power at relatively low cost. There are other technologies
that produce power, most notably fuel cells, microturbines, windmills
and solar cells. It is possible that advances in technology will reduce
the cost of alternative methods of producing power to a level that is
competitive with that of most central power station electric
production. If this were to happen and if these technologies achieved
economies of scale, Southern Company's market share could be eroded,
and the value of its electric generating facilities could be reduced.
Changes in technology could also alter the channels through which
retail electric customers buy power, which could reduce Southern
Company's revenues or increase expenses.
II. SOUTHERN CO. AND ITS POWER PLANT EMISSIONS
Southern Company is the nation's second largest electric utility
and the nation's second largest consumer of coal (behind American
Electric Power). According to an independent benchmarking study
conducted by the Natural Resources Defense Council, Southern was the
second largest U.S. utility emitter of carbon dioxide, sulfur dioxide,
nitrogen oxides and mercury in 2000. That year, Southern had 32,000
megawatts of capacity and coal provided 76 percent of its power
generation. With 128 million metric tons of carbon dioxide emissions,
Southern accounted for 6.4 percent of U.S. utilities' CO2 emissions in
2000, according to the NRDC study. Southern has told IRRC that it is
considering the adoption of CO2 emissions control targets.
To date, Southern has spent considerable sums to comply with the
Federal Clean Air Act, which addresses sources of air pollution. It
estimates that its construction expenditures have totaled $400 million
to achieve significant reductions in sulfur dioxide and nitrogen oxide
emissions under the first two phases of the Clean Air Act Acid Rain
provisions. In the 1990's, Southern cut its sulfur dioxide emissions by
40 percent and its nitrogen oxides emissions by 28 percent, even as its
electricity generation has increased by 20 percent.
In addition, Southern has spent $980 million to reduce nitrogen
oxide emissions from power plants in nonattainment areas around
Atlanta, Ga., and Birmingham, Ala., to meet a regulatory requirement
that goes into effect in May 2003. Additional construction expenditures
for compliance in the Georgia nonattainment area are estimated at $305
million to achieve standards that will go into effect in May 2005.
Altogether, Southern expects to spend an additional $4 billion or more
by 2015 to further reduce its overall emissions-not including carbon
dioxide.
Outlook to 2020: Unlike most utilities, Southern provides a long-
term outlook for its power supply and projected emissions, dating to
2020. Its key projections are as follows:
<bullet> Power generation-Southern expects its annual power
generation to increase from 172 million megawatt-hours in 2000 to
approximately 250 MWh in 2020, an increase of 45 percent.
<bullet> Fuel mix-Southern expects its power supplied from coal to
decrease from 76 percent in 2000 to 38 percent in 2020; its power from
natural gas to increase from 4 percent to 53 percent; its power from
nuclear energy to fall from 16 percent to 6 percent; and its power from
hydro and oil to stay at about 3 percent.
<bullet> Sulfur dioxide and nitrogen oxide emissions-Southern
expects its emissions of sulfur dioxide to fall from nearly 1.5 million
tons in 1990 to about 300,000 tons in 2020, a decrease of about 80
percent. It expects its emissions of nitrogen oxides to fall from
400,000 tons to about 127,000 tons, a decrease of about 68 percent.
<bullet> Carbon dioxide emissions-As a result of generation
growth, Southern expects its carbon dioxide emissions to increase from
128 million metric tons in 2000 to approximately 148 MMT in 2020, an
increase of about 16 percent. It says, ``Although our current
projections indicate a rise in the years ahead, much focus is being
placed on how we can continue to meet the energy needs of our customers
while addressing emissions of greenhouse gases such as CO2.'' From 1990
to 2020, Southern projects that its CO2 emissions will increase by a
total of 45 percent.
Carbon dioxide emissions reduction programs: Since 1991, Southern
has avoided or offset a total of 55 million metric tons of CO2
equivalent. It has registered these savings with the Department of
Energy under Section 1605(b) of the 1992 Energy Policy Act. The savings
have been achieved mainly through improved performance of three nuclear
power plants, thereby offsetting generation and emissions from coal-
fired units. Southern has received 20-year license extensions for two
of its three nuclear power plants, which will extend their expected
life of operation past 2030.
Southern has also sequestered carbon through a reforestation
program that has planted more than 35 million trees. Other carbon
dioxide emissions savings include 3.6 MMT from demand-side management
programs, 0.2 MMT from biomass co-firing in coal-fired power plants,
0.6 MMT of CO2 equivalent from methane reductions and 0.8 MMT of CO2
equivalent from reductions in sulfur hexafluoride, a potent greenhouse
gas.
Congressional Legislation
Several major bills have been proposed in Congress to impose more
stringent emissions limitations under the Clean Air Act. Three of these
bills-the Bush Administration's Clear Skies Act, the Clean Power Act of
2002 and the Clean Air Planning Act of 2002-propose to further limit
power plant emissions of sulfur dioxide, nitrogen oxides, and mercury.
The latter two bills also propose to limit emissions of carbon dioxide.
Though none of these bills was enacted into law in the last Congress,
similar bills have been introduced in 2003.
Carbon dioxide legislation: In addition to the Clean Power Act and
Clean Air Planning Act of 2002, other bills have been introduced in
Congress, including the Climate Stewardship Act of 2003, which proposes
capping greenhouse gas emissions by 2010 and returning them to 1990
levels by 2016. In its 2002 Form 10-K, Southern does not indicate
whether these bills would have material impacts on the company's
operations and financial condition. It says the cost impacts of such
legislation would depend upon the specific requirements enacted.
Management does say in the Form 10-K that domestic efforts to limit
greenhouse gas emissions have been spurred by international discussions
surrounding the Framework Convention on Climate Change and specifically
the Kyoto Protocol, which proposes international constraints on the
emissions of greenhouse gases. Southern is involved in a voluntary
electric utility industry initiative in partnership with the Bush
Administration, which does not support ratification of the Kyoto
Protocol or other mandatory carbon dioxide reduction legislation. The
Bush Administration's voluntary climate initiative seeks an 18 percent
reduction by 2012 in the rate of greenhouse gas emissions relative to
the dollar value of the U.S. economy. Electric utilities have pledged a
3 to 5 percent reduction in the carbon intensity of their emissions by
2012. Absolute emissions of carbon dioxide would continue to rise.
Because this initiative is still under development, Southern says it is
not possible to determine the effect on the company at this time.
New Source Review and Related Lawsuits
If Southern fails to comply with environmental laws and
regulations, even if caused by factors beyond its control, that failure
may result in the assessment of civil or criminal penalties and fines
against the company. The U.S. Environmental Protection Agency has filed
civil actions against Alabama Power, Georgia Power and Savannah
Electric alleging violations of the New Source Review provisions of the
Clean Air Act. The EPA has also issued notices of violation to Gulf
Power and Mississippi Power. Management says in its Form 10-K that an
``adverse outcome in any one of these cases could require substantial
capital expenditures that cannot be determined at this time and could
require payment of substantial penalties,'' ranging up to $27,500 per
day, per violation at each generating unit.
The New Source Review provisions of the Clean Air Act address older
power plants that do not meet the more stringent emissions control
requirements imposed on newest plants. The provisions were meant to
require the installation of best available pollution control technology
on older power plants if they were overhauled and underwent major
modifications. Questions have arisen, however, over what constitutes
major modification and what is considered routine maintenance for these
plants.
In December 2002, the EPA issued final and proposed revisions to
the New Source Review program that are intended to clarify which
maintenance expenditures do not warrant obtaining new Clean Air Act
permits. Several Northeastern States petitioned the District of
Columbia Circuit Court in February 2003 for a stay of the final rules.
The stay was not granted. The proposed rules were open to public
comment and may be revised before being finalized by the EPA. Any final
regulations must be adopted by the States in the company's service area
in order to apply to its facilities. Management says it cannot
determine the effect of these proposed and final rules concerning the
New Source Review at this time.
Lawsuits: In November 1999, the EPA began a civil action against
Alabama Power, Georgia Power and Savannah Electric alleging violations
of the New Source Review provisions of the Clean Air Act. The lawsuit
requests penalties and injunctive relief, including an order requiring
the installation of the best available control technology at six
affected units. The EPA has issued a notice of violation relating to
each of these facilities as well as two others owned by Alabama Power.
The cases against Southern's operating units have been stayed since
the spring of 2001. A ruling is pending by the U.S. Court of Appeals
for the Eleventh Circuit in the appeal of a very similar New Source
Review enforcement action against the Tennessee Valley Authority.
Because the outcome of the TVA appeal could affect the lawsuits pending
against Southern's operating units, Alabama Power and Georgia Power
have become parties to the TVA case as well. Southern believes its
operating units were engaged in ``common and traditional maintenance
activities'' of its power plants and ``complied with applicable laws
and the EPA's regulations and interpretations in effect at the time the
work in question took place.''
Other Clean Air Act Issues
Southern's 2002 Form 10-K addresses a number of other requirements
concerning the Clean Air Act and State clean air standards. These
requirements are likely to result in additional capital expenditures,
although in each instance management says it does not have enough
information to characterize the possible impact on the company's
operations or financial condition. These include:
National ambient air quality standards for ozone and fine
particulate matter: The U.S. Environmental Protection Agency will issue
final implementation rules in 2004 that are expected to designate
several areas within the company's service area with nonattainment
under the new ozone and fine particulate matter standards. State
implementation plans to bring those areas into compliance could be
required as early as 2007. Those State plans could require further
reductions in nitrogen oxide and sulfur dioxide emissions from power
plants sometime after 2007. Management says the impact of any new
standards will depend on the development and implementation of
applicable regulations.
Regional Transport Rule: The EPA also is expected to issue final
rules for a Regional Transport Rule for the fine particulate matter
standard in 2005. This rule would likely require year-round sulfur
dioxide and nitrogen oxide emission reductions from power plants as
early as 2010. If issued, this rule would likely modify other State
implementation plan requirements for attainment of the fine particulate
matter standard and ozone standard referenced above. Management says it
is not possible at this time to determine the effect such a rule would
have on the company.
Regional haze: Further reductions in sulfur dioxide also could be
required under the EPA's Regional Haze rules. The Regional Haze rules
require States to establish Best Available Retrofit Technology (BART)
standards for certain sources that contribute to regional haze.
Southern says it has a number of plants that could be subject to these
rules. State Implementation Plans for these rules are due in 2007 and
2008. Because new BART rules have not been developed and State
visibility assessments are only beginning, management says it is not
possible to determine the effect of these rules on the company at this
time.
Compliance assurance monitoring: The EPA's Compliance Assurance
Monitoring (CAM) regulations require that monitoring be performed to
ensure compliance with emissions limitations on an ongoing basis. Four
of Southern's operating companies will be applying for renewal of
operating permits between 2003 and 2005 that will likely be subject to
CAM requirements for at least one pollutant (in most cases particulate
matter). The company is in the process of developing CAM plans, which
could indicate a need for improved particulate matter controls at
affected facilities. Because the plans are still in the early stages of
development, management says it cannot determine the extent to which
improved controls could be required or the costs associated with any
necessary improvements.
Mercury: The EPA plans to issue final rules regulating mercury
emissions from electric utility boilers by the end of 2004. The program
is being developed under the Maximum Achievable Control Technology
provisions of the Clean Air Act. Compliance could be required as early
as the end of 2007. Because the rules have not yet been proposed,
management says the costs associated with compliance cannot be
determined at this time.
Coal Research
Southern is committed to the continued use of coal as one of its
main sources of generation. It says on its company website that is
pursuing development of coal technologies that ``could 1 day generate
energy from coal while producing dramatically fewer emissions or no
emissions at all.'' Southern has managed more than $400 million in
research and development efforts over the last 10 years, much of it on
clean-coal technologies. ``During the transition period to new clean
coal technologies and other cleaner generation, it is critical that
existing units be kept in efficient, operational order to maintain the
reliability of our electric power system,'' the company says.
``Utilities must be able to operate and maintain their plants to meet
increases in demand for electricity.''
At a facility in Alabama, Southern has successfully tested a
technology that turns coal into gas, which could be used to produce
electricity more cleanly than traditional coal plants. Coal
gasification would cut carbon dioxide emissions by more than one third,
relative to conventional coal plants, and emissions of sulfur dioxide,
nitrogen oxides and particulate matter also would be ``significantly
reduced,'' according to the company. The research program is a
partnership with the U.S. Department of Energy in which $271 million
has been invested.
Southern is also one of eight large coal-burning utilities and coal
companies to form an alliance that seeks the creation of a ``near zero-
emission'' coal-fueled power plant. The alliance is in support of
President Bush's FutureGen Initiative, a 10-year public-private
partnership that seeks to advance the use of hydrogen through
extraction from coal. An April 22, 2003, press release announcing the
alliance States that ``The U.S. has more than a 300-year supply of
coal; therefore, the effort to design near zero-emissions power plants
promises to create a new way in which coal can power our economy with
minimal environmental impacts.''
Southern also became the first utility to join the Zero Emission
Coal Alliance. The aim of the alliance is to test technology that
generates electricity with coal in a process that stores carbon dioxide
in a solid, mineral carbonate form, thereby eliminating greenhouse gas
emissions. Hydrogen extracted from coal through an anaerobic process is
used in a fuel cell to generate electricity. Rights to the proprietary
technology are now held by ZECA Corporation, which aims to be ``the
premier owner and supplier of Zero Emission Coal and Carbon
solutions.''
III. PROPONENTS' POSITION
This is the fourth time that shareholder proponents affiliated with
the Interfaith Center on Corporate Responsibility have submitted a
global warming resolution to Southern Company. Shareholder proponents
withdrew resolutions asking the company to report on the costs and
liabilities of climate change in 1997, 1999 and 2002. The withdrawals
came because ``the company was willing to be forthcoming with data we
were asking for,'' according to Sister Patricia Daly, executive
director of the Tri-State Coalition for Responsible Investment, who has
been one of the lead filers at Southern.
Earlier this year, the company once again sent representatives,
including Dr. Charles Goodman, Southern's senior vice president for
research and environmental affairs, to meet with Daly and other
shareholder proponents in New York. Daly told IRRC that this year's
meeting was not as productive as in years past, ``because they clearly
had not done their homework on what our new resolution is about.''
Company executives presented an update of Southern's environmental
progress and initiatives. ``But we're in a whole new ballgame now,''
Daly explained. ``We want the company to evaluate its data in terms of
climate change risk, and we don't have any indication that anyone at
the company is doing this.''
The resolved clause of the 2003 global warming resolution has two
elements. It asks the company's board of directors to report on:
(a) the economic risks associated with the Company's past, present
and future emissions of carbon dioxide, sulfur dioxide, nitrogen oxide
and mercury emissions, and the public stance of the company regarding
efforts to reduce these emissions and (b) the economic benefits of
committing to a substantial reduction of those emissions related to its
current business activities (i.e., potential improvement in
competitiveness and profitability).
In a presentation by Ceres, a coalition working closely with the
Interfaith Center on the 2003 shareholder campaign, general arguments
made in favor of the global warming resolution filed with electric
utilities are as follows:
1. Health and environmental risks from pollutants: Electric
utilities account for two-thirds of the nation's sulfur dioxide
emissions, one-third of its mercury emissions and nearly one-quarter of
its nitrogen oxides emissions. These pollutants contribute to asthma,
lung and heart disease and mercury bioaccumulation in humans, and cause
extensive damage to the environment, including acid rain, smog and
mercury bioaccumulation in fish and other species. At the same time,
electric utilities account for 37 percent of the nation's carbon
dioxide emissions, the main gas tied to global warming.
2. Government regulation of these pollutants: Emissions of sulfur
dioxide and nitrogen oxides are regulated under the Clean Air Act. This
Federal law will require substantial additional reductions of these
emissions as well as mercury in the years ahead. Utilities will have to
make major new investments in pollution control technology, but this
technology will not control carbon dioxide emissions.
3. Risks of not factoring in carbon dioxide controls: The
proponents believe domestic regulatory controls of CO2 are inevitable.
Two States (New Hampshire and Massachusetts) have already passed laws
restricting utility emissions of CO2, and Federal legislation has been
introduced as well. At the international level, the Kyoto Protocol is
likely to go into effect this year (although the Bush Administration
has said the United States will not be bound by the agreement).
According to studies cited by the proponents, the most expensive
choice utilities could make is to retrofit existing fossil energy
plants with new pollution control equipment and then have to reduce CO2
emissions from these plants. The proponents argue that utilities should
factor future CO2 controls into their investment strategies now, since
it could alter decisions about which power plants to retrofit with new
pollution control equipment and which to replace with new, cleaner
energy sources.
4. Need for greater disclosure by utilities: By some estimates
cited by the proponents, many electric utilities face a ``carbon
exposure'' of between 10 and 35 percent of their total market
capitalization. (In other words, the cost of achieving carbon dioxide
emission controls as specified by the Kyoto Protocol equals 10 to 35
percent of the current value of their stock.) Many factors go into
making this calculation, including a utility's generating assets, fuel
mix, installed pollution control technologies and whether it is
competing in a deregulated electricity market. ``Investors cannot
assess this risk without more disclosure'' from utilities, according to
Ceres.
That is why the proposal calls on management to conduct a thorough
economic assessment of the risks and benefits of achieving substantial
emissions reductions of the four pollutants listed in the proposal.
``We believe that taking early action on reducing emissions and
preparing for standards could better position companies over their
peers, including being first to market with new high-efficiency and
low-emission technologies,'' the proponents argue. ``Changing consumer
preferences, particularly those relating to clean energy, should also
be considered. Inaction and opposition to emissions control efforts
could expose companies to reputation and brand damage, and regulatory
and litigation risk,'' it concludes.
IV. MANAGEMENT'S POSITION
Management opposes the resolution seeking more disclosure on the
company's efforts to address climate change. It argues that the
resolution would duplicate company reporting activities and be unduly
speculative. It says in its proxy statement that ``the detailed
information requested on future costs and risks would require knowledge
of future governmental or other legal action,'' beyond what is already
discussed in company reports.
Management says the proponents' request for information on the
``economic risks associated with the Company's past, present, and
future emissions'' can be found in the Southern's Annual Report on Form
10-K, which is available on the Company's website and the website of
the Securities and Exchange Commission. In addition, details on the
company's risk factors, including historic and anticipated
environmental costs and known future contingencies, are included in the
company's Annual Report to Stockholders in the Management's Discussion
and Analysis section.
Finally, management says the company's environmental commitment and
achievements are described in its Environmental Progress Report, which
is available for viewing and downloading on the company's website and
will be sent to stockholders or others upon request.
Management does not offer any specific comments in its proxy
statement on the global warming issue or its expenditures to control
emissions of pollutants regulated by the Clean Air Act. It says only
that Southern ``is committed to complying fully with all environmental
laws and regulations as well as maintaining our commitment to
environmental stewardship in such a way that appropriately considers
our customers and stockholders.''
V. IRRC ANALYSIS
SmartVoter Guidelines
Voting guidelines for this resolution are presented under issue
number 3425 in IRRC's SmartVoter product.
Questions Raised
<bullet> Is Southern responding adequately to the risks of global
warming?
<bullet> Could Southern do more to report on these risks to
shareholders?
Risks of global warming: As the nation's second largest electric
utility, and one of the most heavily reliant on coal, Southern has a
tremendous amount at stake in the global warming debate. Carbon dioxide
emissions from its power plants account for nearly 2.5 percent of the
nation's CO2 emissions. As it expands its power generation, Southern
expects these emissions to grow by another 16 percent by 2020-for a
total increase of 45 percent between 1990 and 2020.
Legislation proposed in Congress calls on companies to ``cap and
trade'' their emissions. Under the Climate Stewardship Act, for
example, companies would be required to return to 1990 emissions levels
by 2016. The Kyoto Protocol (which the United States has not endorsed)
calls for more stringent controls-a 7 percent cut in CO2 emissions
below 1990 levels by 2012. Management says it is focused on
``addressing emissions of greenhouse gases such as CO2,'' but it has
not indicated to shareholders the extent of such controls and whether
they would have a material impact on the company's operations and
financial condition. It says the cost impacts of CO2 controls would
depend upon specific requirements of government legislation.
Meanwhile, Southern continues to make extensive investments in its
aging fleet of coal-fired power plants. As the utility industry's #2
emitter of sulfur dioxide and nitrogen oxides, Southern has spent $1.4
billion to install pollution control equipment under the acid rain and
ozone nonattainment provisions of the Clean Air Act. It expects to
spend an additional $4 billion or more by 2015 to further reduce these
and mercury emissions. However, its spending on pollution control could
be higher and come sooner if it loses a series of court cases now
before U.S. Court of Appeals. At issue is whether Southern's older coal
plants must install best available pollution control technology when
they receive modifications. Management says that an adverse outcome in
any one of these cases could require ``substantial capital
expenditures'' and could require payment of ``substantial penalties"-
ranging up to $27,500 per day, per violation at each generating unit.
The proponents are concerned that Southern may find itself making
costly investments to retrofit existing fossil energy plants with new
pollution control equipment and later have to reduce CO2 emissions from
these plants, compromising the future value of these investments. The
proponents argue that utilities should factor possible CO2 controls
into their investment strategies now, since that could alter their
decisions about which power plants to retrofit and which to replace
with new, cleaner energy sources. Accordingly, they are asking
management to issue a report on this issue.
Adequacy of reporting by Southern: Southern provides a much clearer
outlook for its power generation than most electric utilities. With
projections out to 2020, management has informed shareholders that it
expects its power generation to grow by 45 percent, even as it reduces
its emissions of sulfur dioxide and nitrogen oxides by 68 to 80 percent
of 1990 levels. These reductions will be made possible not only by
investments in pollution control equipment at its coal-fired plants,
but also by construction of new gas-fired plants to meet incremental
power demand. Natural gas is expected to account for about half of
Southern generating mix by 2020, while coal's contribution is expected
to fall from about two-thirds to just over one-third. Because natural
gas has a lower carbon content than coal and burns more efficiently,
Southern also expects to reduce the ``carbon emissions intensity'' of
its power production. For every 3 percent increase in power generation,
it is projecting only a 1 percent increase in its CO2 emissions.
As detailed as this reporting is, it still does not answer the
proponents' fundamental question, however: What will the company do if
it has to achieve stabilization or reductions in its CO2 emissions over
the next 10 to 20 years? By 2020, Southern's CO2 emissions are
projected to be 45 percent above 1990 levels. Accordingly, even
achieving stabilization at 1990 levels would entail a substantial
emissions reduction from the levels now being projected.
On this vital contingency, management offers very little guidance
in its Form 10-K or other securities filings. With respect to
government policy, management says the effects on the company would
depend on the terms of legislative controls. With respect to
technology, management does acknowledge that the commercial success of
low-emitting technologies, such as fuel cells and renewables, could
erode its market share and reduce the value of its electric generating
facilities, if they achieve economies of scale. But again management
gives no indication of whether these developments would be material to
the company and its shareholders. By inference, the suggestion is that
they could be.
By reviewing the company's environmental report, shareholders are
able to glean some other useful pieces of information. With respect to
renewables, Southern does not see them posing much of a threat-or
opportunity-in its service area because the available resources are
limited and the costs of generation are higher than power from coal or
natural gas. (This assumes no costs of carbon emissions will be added
to these fuels.) With respect to coal, Southern says it is pursuing
development of cleaner-burning technologies that ``could 1 day generate
energy from coal while producing dramatically fewer emissions or no
emissions at all.'' It does not give a clear sense of the generating
costs or technological hurdles that remain with clean coal
technologies, however, so it is not possible for shareholders to
compare their prospects with those of renewables. Finally, with respect
to the issue of climate change, Southern continues to regard it as
``global and long-term in nature,'' and believes that policies ``should
seek to resolve climate change scientific uncertainties.'' Management's
key point is this:
During the transition period to new clean coal technologies and
other cleaner generation, it is critical that existing units be kept in
efficient, operational order to maintain the reliability of our
electric power system. Utilities must be able to operate and maintain
their plants to meet increases in demand for electricity.
Herein lies the dilemma for investors. The proponents say
management must provide better information on the costs and risks of
this strategy, given that the cost of achieving carbon dioxide emission
controls ranges from 10 to 35 percent of the current value of utility
companies' stock, according to some estimates. Management says,
however, that the detailed information requested by the proponents
would require knowledge of future governmental or other legal action
beyond what is already discussed in company reports.
In the final analysis, shareholders who are satisfied with
Southern's current level of reporting-which at least provides a clear
outlook for the company's generating mix and projected emissions
through 2020-will be inclined to side with management and vote against
this proposal. Those who feel that management could set some better
financial parameters around the uncertainties in its outlook-especially
what legal, regulatory and legislative developments could be material
to the company and its shareholders-will be inclined to support the
proponents' call for a more detailed report on the costs and benefits
of Southern's evolving response to climate change.
______
EXCERPT FROM SOUTHERN CO.'S PROXY STATEMENT
Shareholder Proposal Related To An Environmental Report:
``ELECTRIC UTILITY RESOLUTION
WHEREAS:
In 2001 The Intergovernmental Panel on Climate Change concluded
that ``there is new and stronger evidence that most of the warming
observed over the last 50 years is attributable to human activities.''
In 2001 the National Academy of Sciences stated that the ``degree
of confidence in the IPCC assessment is higher today than it was 10, or
even 5 years ago . . . there is general agreement that the observed
warming is real and particularly strong within the past 20 years.''
The United States government's ``Climate Action Report--2002,''
concluded that global climate change may harm the country. The report
highlights risks to coastal communities in the Southeast due to sea
level rise, water shortages throughout the West, and increases in the
heat index and frequency of heat waves.
In July 2002, 11 Attorneys General wrote President Bush, outlining
their concern over the U.S. Climate Action Report's failure to
recommend mandatory reductions of greenhouse gas emissions. They
declared that States are being forced to fill the Federal regulatory
void through State-by-State regulation and litigation, increasing the
ultimate costs of addressing climate change. They urged a
reconsideration of his regulatory position, and adoption of a
``comprehensive policy that will protect both our citizens and our
economy.''
U.S. power plants are responsible for about two-thirds of the
country's sulfur dioxide emissions, one-quarter of its nitrogen oxides
emissions, one-third of its mercury emissions, approximately 40 percent
of its carbon dioxide emissions, and 10 percent of global carbon
dioxide emissions.
Scientific studies show that air pollution from U.S. power plants
causes tens of thousands of premature deaths and hospitalizations,
hundreds of thousands of asthma attacks, and several million lost
workdays nationwide every year from pollution-related ailments.
Standards for carbon dioxide emissions and other air pollutants are
emerging across multiple fronts. Ninety-six countries have ratified the
Kyoto Protocol, requiring carbon dioxide reductions. Massachusetts and
New Hampshire have enacted legislation capping power plants emissions
of carbon dioxide and other air pollutants. In June 2002 the Senate
Environment and Public Works Committee passed a bill seeking to cap
emissions from the generation of electric and thermal energy.
We believe that taking early action on reducing emissions and
preparing for standards could better position companies over their
peers, including being first to market with new high-efficiency and
low-emission technologies. Changing consumer preferences, particularly
those relating to clean energy, should also be considered.
Inaction and opposition to emissions control efforts could expose
companies to reputation and brand damage, and regulatory and litigation
risk.
RESOLVED: That the Board of Directors report (at reasonable cost
and omitting proprietary information) by August 2003 to shareholders on
(a) the economic risks associated with the Company's past, present and
future emissions of carbon dioxide, sulfur dioxide, nitrogen oxide and
mercury emissions, and the public stance of the company regarding
efforts to reduce these emissions and (b) the economic benefits of
committing to a substantial reduction of those emissions related to its
current business activities (i.e. potential improvement in
competitiveness and profitability).''
THE BOARD OF DIRECTORS RECOMMENDS A VOTE ``AGAINST'' ITEM NO. 3 FOR THE
FOLLOWING REASONS:
The Company is committed to complying fully with all environmental
laws and regulations as well as maintaining our commitment to
environmental stewardship in such a way that appropriately considers
our customers and stockholders.
The proposal requests a report to our shareholders on the
``economic risks associated with the Company's past, present, and
future emissions.'' The Company currently provides details regarding
its risk factors including historic and anticipated environmental costs
and known future contingencies. This information is included in the
Company's Annual Report on Form 10-K for the year ended December 31,
2002 (``Form 10-K''). The Form 10-K is available on the Company's
website and the website of the Securities and Exchange Commission and
may be obtained from the Company. (See page 2 of this Proxy Statement
for information on requesting a copy of the Form 10-K from the
Company.)
Details on the Company's risk factors, including historic and
anticipated environmental costs and known future contingencies, are
also included in the Annual Report to stockholders in the Management's
Discussion and Analysis of Results of Operations and Financial
Condition section and in the Notes to Financial Statements.
In addition, the Company's environmental commitment and
achievements are described in our Environmental Progress Report. This
report is available for viewing and downloading on the Company's
website and will be sent to stockholders or others upon request.
The Company opposes this proposal because the information the
Company would report is largely duplicative of information already
provided. We also believe the detailed information requested on future
costs and risks would require knowledge of future governmental or other
legal action and is too speculative to report and quantify as requested
by the proposal, beyond what is discussed in the reports noted above.
We believe that it is in the best interests of our stockholders that
the Company not be required to incur the additional expense of
producing and distributing such a report.
The vote needed to pass the proposed stockholders' resolution is a
majority of the shares represented at the meeting and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE ``AGAINST'' ITEM NO. 3.
__________
Statement of Mark Brownstein, Director of Enterprise Strategy, PSEG
Services Corporation
I am honored to be here this morning to represent Public Service
Enterprise Group ( PSEG), and the Clean Energy Group.
PSEG is a diversified energy company with over $25 billion in
assets and over $8 billion in annual revenues. The PSEG family of
companies includes Public Service Electric and Gas Company, New
Jersey's oldest and largest electric and gas delivery company, PSEG
Global, which owns and operates energy production and distribution
facilities overseas, and PSEG Power, one of the largest independent
electric generating companies in the United States, with 13,000
megawatts of electric generating capacity operating or under
construction in New Jersey, New York, Connecticut, Pennsylvania, Ohio,
and Indiana.
The Clean Energy Group (CEG) is a coalition of companies with more
than 100,000 Mw of generation capacity nationwide, including coal, gas,
oil, nuclear, and renewables. The members of CEG--Consolidated Edison,
Inc., Entergy, Exelon Corporation, KeySpan, Northeast Utilities, PG&E
National Energy Group, Sempra Energy, and PSEG are committed to
promoting progressive environmental policies that are economically
sound and sustainable.
PSEG, which celebrates its 100th anniversary this week, has long
believed that environmental performance is one indicator of overall
business performance. Experience has taught us that proactive steps to
improve environmental performance can often lead to better bottom line
results. That said we never take our eye off of bottom line results. In
our view, environment and economics are inseparable, and, as with many
things in life, the secret to success is finding the right balance.
If you remember only one thing from what I say here today, please
remember that one word: balance. For PSEG and the CEG member companies,
the single greatest value to be derived from Federal multi-pollutant
legislation aside from the public health and environmental benefits
themselves--is certainty. And the best way we know to achieve certainty
is through a public policy outcome that strikes the right balance
between environmental and energy policy objectives.
I am aware that this is the third hearing you have held on the many
questions surrounding multi-pollutant legislation. And I am also aware
that various stakeholders have come before you to argue that the
current proposals on the table go too far, or do not go far enough. I
suppose such a tug of war is common in politics, but in business, we
often worry when any one extreme carrys the day, for experience shows
that a strong pull to any one extreme only invites an equal and
opposite backlash at some point down the road. From day one, our goal
in this debate has been to seek and encourage consensus for we believe
that it is only through consensus that we can achieve the kind of
regulatory stability essential to the health of our industry.
You have heard from others here today about the importance of
certainty, and I echo that concern. This is a very capital intensive
industry, where large investments are made in assets that last 30 years
or more. Making large bets on the future is an inherently risky
proposition, and no amount of legislative activity on your part can
offer us 100 percent certainty. But to the extent that the trajectory
of future environmental requirements looms large in the planning of any
major player in our industry, you can make a significant difference by
crafting legislation that clearly articulates expectations over the
next 15 years, at least.
The past two and a half years have been tumultuous for our
industry. We do not need any more excitement. But where some people
might argue that now is the wrong time to set new environmental
requirements, we would argue that to take this ``do nothing'' advice
would be to kill us with kindness.
Whether you believe that the current oversupply of generation and
capital crunch will last 2 years or 5 years, the fact of the matter is
that current market conditions in our industry are part of a cycle. At
some point, hopefully soon, companies like ours will begin to make new
investments in our nation's energy infrastructure, and when we do, it
is critical that we have a clear understanding of the environmental
requirements we will have to meet. Otherwise, I fear, we will be making
bad investments.
Nowhere is this more true than the issue of carbon dioxide
regulation. First off, let me state for the record, as we have said
many times in the past, PSEG believes that President Bush was right to
reject the Kyoto Protocol. The reductions contemplated under that
agreement demanded too much, too fast for our industry and our economy
to handle.
At the same time, we think the issue of climate change is real, and
we believe a domestic regulatory response is both necessary and
inevitable. Given that our industry is singularly responsible for over
a third of the nation's greenhouse gas emissions and 10 percent of
total manmade greenhouse gas emissions worldwide, we cannot, and should
not dodge this issue.
With this perspective in mind, we believe that we are better off as
a company, and as an industry, if we develop and implement a moderate
response now rather than wait 10 years, only to find that the political
problem is now worse or that the environmental problem requires a more
drastic response, and the investment decisions made in the interim were
dead wrong. This is one of the reasons why we think the bill introduced
by Senators Carper, Chafee, Gregg make such an important contribution
to this debate, and why we have been such strong supporters of their
efforts.
We are encouraged by the leadership that the Bush Administration
has shown on the issue of multi-pollutant legislation, and we deeply
appreciate the leadership that Senator Inhofe and, you, Senator
Voinovich, have shown in tackling this very difficult issue. We
encourage you in your efforts to find that balance that I talked about
earlier, and I pledge the full support of PSEG and the CEG companies in
your efforts.
Once again, thank you for the opportunity to testify before this
committee. I will be happy to answer any questions you may have.
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