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EnergyEnvironment

Human Health

Analysis of Potential Quick-Fix Legislative Changes to Address Court Decision

September 5, 2008

Clean Air Markets Division

Office of Air and Radiation

2Office of Air and Radiation, U.S. EPA

Summary of Analysis

• This document presents two analyses of potential quick-fix legislative changes to address the effects of the U.S. Court of Appeals (D.C. Circuit) decision to vacate the Clean Air Interstate Rule (CAIR).

• The health benefit analysis focuses on changes in “premature mortality” for the public that would occur relative to the full CAIR program from various legislative fixes (i.e., additional “deaths occurring” or “lives saved” or “lives lost”) Note that other types of benefits resulting from air emissions changes, such as fewer emergency room visits, lost work days, or school absences, would roughly change the same way the lives saved or lost do in this analysis.

• Several initial observations can be made, based on the cases analyzed and the assumptions used in this analysis:

– Quick reinstatement of full CAIR leads to the most lives saved among the short-term quick legislative fix options between 2009 - 2011.

– Options to quickly reinstate Phase I CAIR followed by tighter legislation do not save as many lives as the full CAIR fix until 8 to 20 years, or so, from now; that means 6,500 to 41,000 more lives will be lost mostly in the next three to six years.

– The longer the time period allowed in a Phase I legislative fix, the greater the health benefits realized; though still well short of what a full CAIR fix would produce.


Summary of Analysis (cont’d)

• In the first analysis, EPA addressed the question of what health benefits could be lost in the near-term under the court’s decision. EPA analyzed short-term legislative alternatives that have been discussed and assessed the implications for emissions reductions and human health benefits that are now uncertain due to the vacatur of the CAIR rule.

• The first analysis (focusing on the short-term) indicates that legislation restoring both Phase I and Phase II of CAIR (“Full CAIR”) would provide the most benefits in the near-term. If only Phase I is restored, the analysis indicates that benefits are appreciably greater, the longer a “Phase I only” legislative fix would be in effect.

• Relative to the full CAIR scenario, implementing Phase I of CAIR for two years, for example, would potentially result in 31,000 lives lost from 2009-2011, compared to 10,000 lives lost under a permanent Phase I legislative fix. If a legislative fix to CAIR is not realized, EPA estimates a loss of 35,000 lives over the same three year period.


Summary of Analysis (cont’d)

• The second analysis (longer-term) addressed the possibility that Congress would not act to fix CAIR in the near term or only partially fix CAIR, and would pass legislation that mandated longer-term reductions of SO2 that are more stringent than CAIR over assumed time periods.

• Under this analysis, a partial short-term fix, or failing to enact any fix at all, leads to lives lost in the next three to five years, relative to what CAIR was expected to achieve. Even if Congress imposes stricter emission limits than CAIR without a shorter-term fix, delays caused by the time needed to pass legislation and finalize new rules and implement the new rules results in thousands of lives lost over several years.

• Under one scenario used in the second analysis, 40,500 deaths could occur over five years before new legislation would begin to result in fewer deaths per year than CAIR. And under this scenario, it would take until 2024 for new, more stringent legislative requirements to attain the same benefits as CAIR. Other scenarios could reduce the number of deaths, but under these scenarios, it would take until 2016 to 2026 or beyond to achieve the same benefits that are produced by restoring full CAIR.


Short-term Analysis


Background

• Following the court decision a range of interested parties (Congress, States, Environmental Community, Industry) began considering short-term legislative options to ensure that some of the gains from the Clean Air Interstate Rule (CAIR) were achieved.

• Options being discussed include:– Legislation reinstating Phase I

• Short term (2 years or less)• Medium term (4-5 years)• Long term (until superseded by something else)

– Legislation reinstating full CAIR

• The following presents some analysis that EPA has performed to help inform the discussions.

Note: This analysis considered that legislation acting to reinstate full CAIR or Phase I of CAIR would be without prejudice to future legislative and regulatory activity regarding CAIR or additional reductions based on the CAIR framework.


Key Points –

SO2

• By far the greatest health benefits from CAIR come from SO2 reductions.• Because CAIR is based on a phased trading program, reductions and

benefits achieved in Phase I are highly dependent upon market’s view of Phase II and beyond.

– The impact that a legislative fix has on Phase I emission reductions varies based on:

• Length of time for Phase I fix• View of what is likely to happen in Phase II

– Does it use or build upon Title IV? (e.g., under a legislative fix or if the court reconsiders its decision), or does it use mechanisms outside of Title IV (e.g., States alone, EPA without change to court decision)

– Timing (both when reductions are required and when the requirements are put in place) and levels


Historical Market Expectations

Source: http://www.evomarkets.com/

CAIR Proposal

December 2003

CAIR Supplemental

May 2004CAIR Final

March 2005

Since CAIR was finalized, we have observed some allowance price fluctuation resulting from reconsideration and litigation of CAIR.

Market experts believe that current allowance prices reflect lack of confidence that legislation is likely to pass.

Nominal Dollars

Historically, only definitive action (e.g., publication of CAIR proposal, promulgation of final CAIR) and not work on action (e.g., introduction of legislation) has moved the market.

Various Multi-PollutantLegislative Proposals Introduced


Key Points -

NOx

• NOx reductions have significant benefits particularly for ozone non- attainment areas.

• Because the NOx trading programs depend on banking to a much lesser extent, emission reductions are mostly impacted by level of phase I cap and timing and are much less driven by perceptions about the future.

• Costs are likely to increase with short-term fixes as companies favor short- term solutions (e.g., switching to natural gas, potentially SNCR) with higher operating costs over more capital intensive solutions (e.g., SCR) with higher capital costs, but lower overall costs.

• Because reductions and benefits are mostly driven by SO2 , EPA’s analysis focused on SO2 and excludes NOx reductions and benefits, including reductions in premature mortality associated with ozone.


Background on EPA Analysis –

Used New Interim Version of IPM

• Includes key updates from EIA to reflect the Energy Security and Independence Act of 2007 (EISA)

– Lower electric demand

• Includes updated information about announced retrofits and future requirements (e.g., State rules independent of CAIR, Consent Decrees)

• Increased capital costs• Better representation of renewables


Background on EPA Analysis – Scenarios Analyzed

• Analysis focused on impacts of alternatives on SO2 emission reductions and related health benefits in the short term (2009-2011), before State or Federal action would likely be able to require widespread controls to replace CAIR.

• More specifically, this analysis focuses on impact of structure of fix (e.g., length and whether it focuses on Phase I or includes all of CAIR).

• This is a stylized analysis that could only take a limited set of major factors into account. Other types of actions to make up for the lost CAIR reductions by EPA, States, and industry to add pollution controls after 2008 are not factored in and the reader needs to independently consider those implications when viewing the results.

– Many States assume the CAIR reductions for their ozone attainment SIPs due in June 2007, Regional Haze SIPS due in December 2007 and PM2.5 Attainment SIPs due in April 2008. The analysis does not include measures States would have to take to make pollution controls federally enforceable or to require additional controls, as necessary, after 2008. The reader needs to independently consider those implications when viewing the results.


Caveats about Analytic Limitations

• Analysis is dependent upon assumptions about what will happen absent CAIR (e.g., will companies continue to install controls, will they run existing controls, will they continue to use lower sulfur coal, etc.).

– EPA assumed that all controls due to be installed through 2008 were installed even though there may be no Federally-enforceable requirement to do so, once the court decision’s mandate issues.

– Decisions about post 2008 controls were made by the model based on environmental constraints and cost.

• Alternative assumptions are unlikely to change results directionally, but would change the numeric results.


Additional Caveats and Assumptions

• Analysis assumes that installed controls are turned on and operated at full effectiveness:

– Because of regulatory and operational constraints, it may be difficult to turn off existing SO2 controls

– There is likely significantly greater opportunity to run controls at less than full effectiveness

• EPA’s BenMAP model was used to calculate incidences of premature mortality avoided per 1,000 tons of SO2 emission reduction for the CAIR and non-CAIR regions:

– The benefit per ton analysis is founded on the Pope et al. results of the Fall 2005 Multi-Pollutant Analysis of CAIR/CAMR/CAVR

– The analysis accounts for differences in benefit per ton between 2009 and 2011 due to changes in U.S. population and underlying baseline mortality rates

– Note that other types of benefits resulting from air emissions changes, such as fewer emergency room visits, lost work days, or school absences, would roughly change the same way the lives saved or lost do in this analysis.


SO2

Emissions from the Power Sector in the Short-term (2009-2011)*

* This chart considers forecasted emissions from full CAIR and various quick fix alternatives. It does not factor in independent actions from States or industry to provide added controls without other direct federal requirements. For subsequent years, Clean Air Act requirements could be expected to result in new control measures needed to attain the current NAAQS and implement the more stringent 2006 NAAQS for PM2.5 and ozone.

Potential Annual SO2 Emissions under Various Quick Fix Options in 2009-2011 for the CAIR Region*

0

2,000

4,000

6,000

8,000

10,000

12,000

2005 Emissions Full CAIR No Fix CAIR Ph I w/ 2YR Sunset

CAIR Ph I w/ 4YR Sunset

CAIR Ph IPermanent

1,00

0 to

ns

200920102011CAIR Phase I CapNon-CAIR SO2 Sources

CAIR SO2 Sources


Potential Annual Premature Deaths for Various Quick Fix Options in 2009-2011 for the CAIR Region*

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

No Fix CAIR Ph I w/ 2 YRSunset

CAIR Ph I w/ 4 YRSunset

CAIR Ph I Permanent

Ann

ual P

rem

atur

e D

eath

s

2009

2010

2011

Benefits Relative to CAIR in the Short-term (2009-2011)*

≈

31,000 Lives Lost

≈

22,000 Lives Lost

≈

10,000 Lives Lost

≈

35,000 Lives Lost



Long-term Analysis


Scenarios Analyzed

• EPA analyzed the impact of four potential quick-fix options in concert with two potential legislative options that would be enacted in conjunction with subsequent enactment of two options for new Clean Air Act legislation. EPA then compared emission reductions and benefits under all options with the benefits that would occur under full CAIR*.

• Quick fix options considered (in CAIR region):– No fix– 2 year extension of phase I– 4 year extension of phase I– Permanent extension of phase I

• Legislative options considered:– 3.5 million ton nationwide SO2 cap in 2013, 2.0 million ton cap in 2017– 3.5 million ton nationwide SO2 cap in 2015, 2.0 million ton cap in 2019

* Full CAIR as analyzed would not assume further legislative or regulatory activity over the period analyzed.


SO2

Emissions from the Power Sector in the Short-term (2009-2011)*


** The ‘No Fix’ scenario represents emission controls in place through 2008, and does not assume further reductions in emission levels due to legislative or regulatory activity during the period analyzed.

• Full CAIR leads to the lowest level of SO2 emissions, therefore provides the greatest SO2 emission reductions of the options in the short-term.

Potential Annual SO2 Emissions under Various Quick Fix Options in 2009-2011 for the CAIR Region*

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

1,00

0 To

ns

Full CAIR No FixCAIR Ph. I w/ 2 YR Sunset CAIR Ph. I w/ 4 YR SunsetCAIR Ph. I Permanent

2009 2010 2011

**


SO2

Trajectories for the CAIR Region for Various Phase I Options that Depend on Later Legislation

• All the options for a CAIR Phase I fix lead to more loss of life than full CAIR initially and it takes many years to make up the losses in increased benefits later (see details in charts that follow).

• In one case, the benefits never make up the initial loss in the 20 year period of the analysis ( see No CAIR fix/2015 added SO2 controls).

SO2 Emission Trajectories in the CAIR Region for CAIR Legislative Fix Options (Affected Sources)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

Mill

ion

Tons

Full CAIR CAIR 2-YR Sunset, 3.5 Ph. II in 2015 and 2.0 in 2019CAIR 2-YR Sunset, 3.5 Ph. II in 2013 and 2.0 in 2017 CAIR 4-YR Sunset, 3.5 Ph. II in 2015 and 2.0 in 2019CAIR 4-YR Sunset, 3.5 Ph. II in 2013 and 2.0 in 2017 No 2010 Policy, 3.5 Ph. II in 2015 and 2.0 in 2019No 2010 Policy, 3.5 Ph. II in 2013 and 2.0 in 2017 Permanent CAIR Ph. I, 3.5 Ph. II in 2015 and 2.0 in 2019Permanent CAIR Ph. I, 3.5 Ph. II in 2013 and 2.0 in 2017

Note: The nationwide emissions trajectories for SO2 are very similar to emissions trajectories for the CAIR region. Full CAIR provides lower emission levels compared with all the alternatives in the next 3-6 years. Under assumptions used in this analysis, and as explained more thoroughly in subsequent slides, full CAIR also saves more lives in the aggregate compared with all analyzed alternatives from 2009 to 2015.


Other Important Concerns

• Some stakeholders believe that CAIR Phase I followed by comprehensive legislation will lead to some additional reductions that might happen in anticipation of legislation; others do not see this happening.

• Benefits estimates only include estimates of premature mortality resulting from reductions in SO2 emissions; other types of benefits are not included in this analysis.

• Similar to Part 1 of this analysis, the analysis of the full CAIR option does not account for additional reductions that might happen in later years through legislation, EPA action, State action, etc.


Several Ways to Evaluate Alternative Scenarios

• Considering quick fixes for CAIR in conjunction with new SO2 control legislation involves consideration of what CAIR offers now that could be temporarily lost in exchange for the possibility of greater SO2 reductions in the future.

• How fast that could happen under legislation is unclear – we modeled legislation bringing tighter national SO2 phase I/phase II caps in both 2013/2017 and 2015/2019, to show the importance of the timing of future action.

• It is important to recognize that if no other action happens to replace CAIR, or a quick fix does not occur, there will be disbenefits relative to CAIR (lives lost) until further SO2 controls occur. This leads to the uncomfortable but necessary evaluation of the risk trade- offs that occur over time.

• Examining cumulative net benefits over time:

– Compare cumulative disbenefits and benefits of various alternatives to determine when alternatives achieve greater net benefits.

• Assessing the likelihood of cumulative disbenefits and benefits over time:

– This analysis shows that in most cases, if the legislative solution occurs, there are additional benefits over CAIR at some point in the future. However, there is some uncertainty over whether future legislation (and thus associated benefits) will occur. Because viewpoints about the potential for future legislation vary significantly, EPA has not attempted to discount benefits of the future legislative options to account for this uncertainty. Readers should take that into account when considering these results.


Annual Incidences of Premature Mortality Lost/Saved Relative to Full CAIR Assuming new SO2 legislation with caps in 2013 and 2017

No CAIR Quick Fix 2 Year CAIR Quick Fix

(12,000)

(9,000)

(6,000)

(3,000)

0

3,000

6,000

2024 Equivalence Year (orange area = green area)

Live

s S

aved

+Li

ves

Lost

+

20092029

40,500*

30,000**

2021 Equivalence Year(orange area = green area)

20092029

33,900*

49,900**

* Equivalence Benefits – Lives lost without full CAIR equal lives saved due to new SO2 legislation** Added Benefits – Net lives saved due to new SO2 legislation+ Lives – The term lives is used as shorthand meaning incidences of premature mortality avoided

(a lost life is actually a lost incidence of premature mortality avoided)



4 Year CAIR Quick Fix Permanent CAIR Phase I

20092029

2016 equivalence year(orange area = green area)

6,700*

63,000**

(12,000)

(9,000)

(6,000)

(3,000)

0

3,000

6,000


20092029

25,200*

59,200**Live

s S

aved

+Li

ves

Lost

+





No CAIR Quick Fix 2 Year CAIR Quick Fix


20092029

15,400**

35,700*

(12,000)

(9,000)

(6,000)

(3,000)

0

3,000

6,000

No equivalence year

20092029

41,100*

(1,800)**Live

s S

aved

+Li

ves

Lost

+





4 Year CAIR Quick Fix

2029

Permanent CAIR Phase I


20092029

49,900**

6,500*

(12,000)

(9,000)

(6,000)

(3,000)

0

3,000

6,000


2009

26,200*

35,600**Live

s S

aved

+Li

ves

Lost

+




Qualitative Discussion of Non-Title IV Fix

• If a long-term solution is devised that does not build upon Title IV, there will be no incentive to bank Title IV allowances.

– Sources will not have an incentive to continue to make additional reductions until new program goes into place.

– In the short-term, sources may increase emissions by switching to higher sulfur coal, turning off controls, or utilizing controls at lower efficiency. They can do this because of the considerable number of banked Title IV allowances that have little or no value.

– In the long term, sources would achieve additional reductions in accordance with the long-term solution.

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