As environmental groups and utilities go head to head on mercury emissions regulation of coal-fired power plants, a lengthy legal battle is expected following last month's federal appeals court decision that ruled U.S. EPA's cap-and-trade program for regulating mercury emissions illegal. During today's OnPoint, Jeff Holmstead, head of the environmental strategies group at Bracewell & Giuliani and former air chief at EPA, gives his read on the court's decision. Holmstead explains why he believes existing power plants cannot be expected to meet the 90 percent emissions reduction goal environmental groups are pushing for. Holmstead also gives his views on EPA's California waiver decision on vehicle tailpipe emissions.
Monica Trauzzi: Welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Jeff Holmstead, former chief air official at the U.S. EPA and currently head of the environmental strategies group at Bracewell & Giuliani. Jeff, thanks for coming on the show.
Jeff Holmstead: My pleasure. It's good to be here.
Monica Trauzzi: Jeff, on February 8 a federal appeals court tossed out the EPA's cap-and-trade program for regulating mercury emissions. What's your take on this ruling? How does it read for you?
Jeff Holmstead: Well, I actually think there's a very good chance that the government will seek rehearing en banc and if the D.C. Circuit is paying any attention to it, I think there's a fairly good chance they'll take the case, because as a matter of administrative law it just doesn't make any sense.
Monica Trauzzi: And at this point several states are opposing the decision.
Jeff Holmstead: Oh, I think there's likely to be, here's what's just curious about the way they came down. The Clean Air Act says very clearly that there are certain standards that EPA has to meet if it's going to list something, right? And those are a little different for power plants than for other sources, but there's this listing process. And the act also says, well, if someone's unhappy with that they can challenge it in court and if EPA listed it incorrectly then the court to strike it down. What the D.C. Circuit has now said is, well, we may be able to do that, but EPA, you can't. So, we can decide that that listing was improper or it was a mistake, but you're not allowed to do that. Once you do that you're stuck and you have to go through this other process. And that just is a nutty from an administrative law perspective or from a matter of constitutional law. And I think there are a number of people who are increasingly puzzled with some of these D.C. Circuit decisions and this could be a real effort to try to get the D.C. Circuit, and in particular some judges who seem to reappear over and over again on some of these decisions, to pay more attention to what the law says as opposed to what the environmental activists say. So, I actually think this could be a fairly significant event in terms of rehearing en banc before the D.C. Circuit if the government can get the other members of the circuit to pay attention.
Monica Trauzzi: So, is there no need then to take another look at the way we're regulating mercury emissions and perhaps make it more stringent?
Jeff Holmstead: Well, it will depend entirely on what happens, assuming there is petition for rehearing en banc and that that is granted. Obviously, even if EPA believes that what the court has done doesn't make any sense, they still follow it once it's the law of the land. So, if the petition for rehearing is denied the agency will have to go back and they'll go through a very long process and at the end of that process they'll come out with a MACT standard. And then someone will challenge that MACT standard and they'll challenge it and they'll say the listing was improper and EPA has agreed that the listing is improper. And so it's a very unusual situation and, unfortunately, sends a lot of people back to the drawing board, people who were on the verge of actually doing things to reduce their mercury emissions and are now kind of puzzled as to what they do next.
Monica Trauzzi: Right, because you're painting this picture of sort of a very long battle to get to the end of this. What do we have in the interim? How are we regulating mercury emissions now?
Jeff Holmstead: One of the things, and as always when my friend John Walke is on your program, I listened to him the other day and he was correct about one thing, and that is there will be sort of an administrative hurdle or there will likely be for some new plants. If a plant has already commenced construction, if they've begun the actual construction on their plant, that's probably different. But for people who have not yet started their construction, they will probably need to get an additional administrative checkmark. It won't change, in my view, anything about what those plants are doing, but it does mean that those plans will probably need to get a permitting authority to make a finding that many of them have made already. The real uncertainty comes with all of the existing plants that are out there today. There are some state programs that are already in place, some are plant specific, some are state kind of trading programs, but there will be enormous uncertainty for a few more years. If the decision stands, there will be uncertainty as EPA comes back and develops another set of regulations and those will be challenged. So, the saga of mercury will continue to go on for quite awhile I think.
Monica Trauzzi: And is this 90 percent reduction something that's feasible and doable, technologically speaking? Can it be done across the country?
Jeff Holmstead: It can certainly be done at new plants is my impression. I mean it's complicated because it depends on what the mercury content of the coal is that you're burning, how variable that is, what the other constituents are. But all of the new power plants that have been proposed have very, very tight mercury controls. And I think the sense is if you put on SCR and a scrubber, depending on the coal you use, you can probably get 90 percent with those technologies. It may be possible or desirable in some cases to add activated carbon. So, I think for new plants, that's the case. For existing plants it's much more complicated.
Monica Trauzzi: So, you have no issue with moving forward with a 90 percent reduction for new plants?
Jeff Holmstead: The 90 percent is kind of a made up number that I know John and others use.
Monica Trauzzi: Well, it's something that environmental groups are trying to obtain, that's for sure.
Jeff Holmstead: Right, it's something that they've advocated for.
Monica Trauzzi: Right.
Jeff Holmstead: And I've even heard Carol Browner say that she mandated that, which is not correct. But it is clear that all of these new plants are doing something that will achieve mercury reductions and my impression is most of them will be able to achieve in that neighborhood. But, again, you really have to look at the situation with the specific plants, the kind of cooling system they use, the kind of coal they burn, and that makes the whole thing complicated. But there is no doubt that these new plants will have very, very low mercury emissions.
Monica Trauzzi: So, what is then the core disagreement between what you're saying and what the environmental groups are saying? Is it just for these sort of pending projects, whether they need to meet these new standards, or is there more to it that you are disagreeing on?
Jeff Holmstead: No, no, I think the environmental groups have been pretty clear that what they're seeking with all these new projects is just more delay in the hopes that they can kill them altogether. It has essentially nothing to do with how well controlled they will be. And I think John essentially said that when he was on your show last week. So, what they're doing is just looking for any avenue they can to stop these new projects. And people who are dependent upon power, people who are looking to develop these plants obviously want to get through that process and begin construction on their facilities. That is going to be, I think, a continued source of controversy. The bigger controversy though is what you do with the existing fleet of power plants. And the environmentalists, I think knowingly, have left themselves in a very awkward position because there was in place a federal rule that will get significant mercury reductions over time and cumulatively will get a lot of mercury reductions. They said, "We don't like that. We want it to be struck down in place of something that we don't know what it's going to be, we don't know when it's going to be coming in place." And so ...
Monica Trauzzi: But they wanted something stronger?
Jeff Holmstead: They wanted something stronger, but there's no guarantee that that will happen. And the one thing that you do know is that will take much longer to put in place. So, the actions that people had been taking in anticipation of CAMR, people are now putting on hold. I mean I've had questions from people who've called and say, "We've ordered this equipment, but the rule has now been struck down. What do we do?" And, unfortunately, until the court brings some more clarity to this, and if the decision holds, as I say, it's likely to be several more years, two or three years or more before EPA comes out with a rule. That rule will almost certainly be challenged, perhaps by both sides, and then there will be probably at least a three, if not a more, year period before that rule comes into place. So, if you compare the cumulative mercury reductions that you would have gotten under CAMR to the cumulative mercury reductions that you may eventually get in the future it's not clear that there will be any significant difference one way or the other.
Monica Trauzzi: So, at this point there's a lot of uncertainty for the utilities.
Jeff Holmstead: Well, yes, but for existing utilities they can just sit back now and say, "OK, we're going to comply with CAIR or we're going to do what we need to do to clean up our SO2 and our NOX, but we don't have to worry about mercury until EPA comes out with a rule some years from now." So, it could easily be six or seven or eight or more years before they're required to do anything for mercury. Whereas, under CAMR, everyone was required to begin monitoring their emissions and taking actions now. And a lot of people were beginning to take actions to bank mercury reductions now in anticipation of the future caps.
Monica Trauzzi: Environmental groups have said that this ruling is sort of serving as a test of the viability of coal and clean coal in the future as part and our energy makeup. Do you think that that's a valid claim?
Jeff Holmstead: I guess I'm puzzled by that claim. I think there are a lot of issues about how coal will be used. It will certainly have to be used. There's no way that our economy can continue to grow and function without figuring out how to use coal. So, I think they're over-reading the decision a little bit at this point. With respect to all these new plants, I don't think it's really going to mean anything except for an additional administrative step, basically the state permitting authority has to check a box and say, well, we found this to be maximum achievable control technology for mercury and non-mercury haps. Many of them have already done that even though they weren't required to do. If you look at these permit applications, they're doing that already. What's going to happen in the future remains to be seen, but there will be a fair amount of uncertainty for quite awhile.
Monica Trauzzi: OK. And last question here. I can't let you go without asking you about the EPA waiver decision on California tailpipe emissions. What's your take on that? Is EPA right here? There's a lot of discussion about this at this point.
Jeff Holmstead: This will be a very interesting case and we don't have time to go into it, but if EPA were sort of starting from scratch I think it's clearly a decision that would be upheld by the courts. There's a lot of history about how these waivers have been granted in the past and EPA, in my view, correctly says, look, that's different. Those filled with local dirty air. This deals with global climate change. But the environmentalists will argue that it shouldn't be different. So, I think we will have another very interesting decision that comes out of the D.C. Circuit. It will be interesting to see if we face sort of the same judges who have looked at all these other cases, because there's some question as to how judges really may be assigned to these environmental cases given that the same judges keep coming up again. But it will be an interesting story that I'm sure you will be paying attention to for quite awhile.
Monica Trauzzi: Yes, and you would predict what? If those same judges are ruling on this decision as well, would they go to the side of the enviros?
Jeff Holmstead: That certainly has been the speculation around town. There is a handful of judges who seem to be much more sympathetic to the arguments of the environmental groups, even when the arguments seem to be rather weak. In this case, I will concede, the issues are much more difficult given the history that has been developed over the years. But, as I said before, another very interesting saga that I'm sure we'll all be paying attention to.
Monica Trauzzi: Yeah, we'll watch it. All right, we'll end it right there. Thanks for coming on the show.
Jeff Holmstead: Thank you, my pleasure.
Monica Trauzzi: This is OnPoint. I'm Monica Trauzzi. Thanks for watching.
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