Energy for a Clean Air Future

1. Energy for a Clean Air Future EPGA October 17, 2002 Bob Wyman Latham & Watkins ROBERT.WYMAN@LW.COM (213) 891-8346

2. ECAF • ECAF’s proposal was developed by diverse group of generators • ECAF represents approximately 53,000 MW of generation • ECAF companies operate in nearly every region of the US (17 States) • ECAF generation mix reflects national mix: National Generation Mix ECAF Generation Mix

3. ECAF Proposal • Multi-Emission Legislation Should: • optimize for multiple objectives (air quality benefits, energy efficiency and fuel diversity) • replace piecemeal rulemaking with comprehensive performance targets, providing a safe harbor until at least 2015 • use cap and trade programs instead of existing source NSR program • Protecting Fuel Diversity -- ECAF vs. other Proposals • Key Elements of ECAF Proposal • NOx • SO2 • Mercury • Voluntary Climate Change Program

4. ECAF Proposed Targets and Timetables • Principle: Targets should reflect AQ needs, fuel diversity, energy efficiency and relative cost-effectiveness. • NOx • 2.35 million ton national cap in 2010 (62%) • SO2 • 6.7 million ton national cap in 2008 • 4.5 million ton national cap in 2012 (50%) • Mercury • 36.4 ton cap (30%) by 2010 (co-benefits) • < 26 ton (50+%) by 2013 based on tech review

5. Administration’s Targets and Timetables • NOx • 2008: 2.1 million ton national cap divided among East and West (ECAF – 2.35 million tons in 2010) • 2018: 1.7 million ton national cap • SO2 • 2010: 4.5 million ton national cap (ECAF – 6.7 million tons in 2008, 4.5 million tons in 2012) • 2018: 3.0 million ton national cap • Mercury • 2010: 26 ton national cap (ECAF – 36.4 tons by 2010; <26 ton cap by 2013) • 2018: 15 ton national cap • Possible 2018 Tightening of Caps

6. Major Issues • Adequacy of Targets and Timetables • Air quality (ozone, PM2.5, regional haze) and tradeoffs (e.g., fuel diversity, cost, efficiency/GHG impacts) • Cap and Trade – Allocation Method • Allocate to existing plants based on heat input • Allocate to existing plants based on power output • Auction • Set asides • new sources • renewables • Nuclear • Special Mercury Allocation Factors (subbituminous and lignite)

7. Issues (continued) • Replacement of Current Clean Air Act Provisions • New Source Review • Applicability • Definition of LAER and BACT • State Petitions (Section 126) • Toxic Air Contaminant Regulation (Title III)

8. Issues (continued) • Clear Skies Direct Allowance Purchase • Safe harbor payment for allowances • $4,000 per ton NOx, SO2 • $2,187.50 per ounce Hg • Alternative: Clean Air Investment Fund • Investment in other emissions-reducing strategies (ECAF). Examples: • Truck engine retrofits • Agricultural engines • Fuel cells to replace marine diesel hoteling

9. Voluntary Climate Change Program • Context - transitional program pending longer term technology developments; preserve diverse fuel mix • Assign responsibilities for emissions from existing units • Fuel-and technology-differentiated heat utilization benchmarks (Btu/kwhr) set below current average or • Emissions baseline benchmarks (adjusted from average of highest three years emissions during 1998-2001) • Set fuel-and technology-specific benchmarks for new units (no overall emission target) • Allow plants/systems not meeting benchmarks to obtain credits to cover shortfall (on-system and off-system) • Potential outcome - stabilize CO2 emissions for existing units by 2010 at 2000 levels

10. Climate Change Program Elements (cont’d) • Give credits for mitigation of both CO2 and other GHGs on a carbon equivalent basis • Create trading market for credit transactions in US and globally • Set dollar-per-ton limit on cost of credits and allow payment into greenhouse gas mitigation fund, which would fund cost-effective GHG reductions • Establish new tracking and data-gathering systems to support program • Critical protections: safe harbor for program duration, baseline protection and credit for early action

11. MACT Levels (#/TBtu)

12. Other Mercury MACT Issues