CAIR Replacement Rule

Discussions between CIBO, AF&PA, ACC, Auto Alliance and EPA

April 14, 2009

I. Introduction

	On Tuesday, April 14, 2009, EPA held a meeting/call with the Council of
Industrial Boiler Owners (CIBO) and other manufacturers that operate
industrial boilers to discuss the CAIR replacement rule. The summary
that follows covers the key issues discussed during the call. More
detailed notes, including a list of all participants in the call, are
being prepared.

II. EPA Opening Comments

	Bill Harnett, OAQPS, began with a short introduction, explaining that
EPA was beginning the process of creating a replacement rule for CAIR.
The Agency is reviewing all options, setting up analyses, and preparing
technical models. The goal is to finalize a replacement rule within two
years.

	The primary objectives are to explore options for the replacement rule
to help states comply with the NAAQS and to reduce interstate transport.
Therefore, EPA has decided that it would be best to start working with
states and stakeholders immediately. EPA has already held a number of
meetings with state groups and would like to hear from stakeholders
about what type of replacement rule would be most practical while also
achieving the required emission reductions. Bill stressed that this is
the beginning of a dialogue process, and that EPA intends to continue
these types of discussions throughout the rule development process.

	This is a chance for the stakeholders to talk to the key EPA staff that
will actually develop and write the rules, as well as the OGC attorneys
assigned to the rule development. Bill stressed that EPA is interested
in hearing the stakeholders' thoughts and concerns. Everything is on the
table as EPA puts together ideas for the new Assistant Administrator for
Air and Radiation, who should arrive within the next couple of weeks.
EPA would like the rule to be as legally defensible as possible, and
stakeholder input will help with the process. Bill said the current
schedule is to have a proposal out by January 2010, and a final rule by
January 2011.

III. CIBO Opening Comments

	Bob Bessette, CIBO, asked that EPA elaborate on what the Agency had
heard about the CAIR replacement rule from the states and other
stakeholders. He noted that CIBO worked closely with the states, often
sharing data and information.

IV. Summary of Past Discussions

	Bill Harnett noted that states have done analyses on industrial boilers
and want EPA to seriously consider including them in a replacement CAIR
rule. NACAA is also interested in including industrial boilers and
cement kilns, as well as any other large sources of SO2 or NOx that EPA
could identify. Most of the modeling had been done by LADCO in a joint
effort with the northeastern states. In general, the regional groups
have not released official positions.  However, all the states
represented in the regional groups have expressed concern that there is
a significant amount of transport that needs to be addressed.

	States have also expressed interest in basing the replacement program
on the newer PM and ozone NAAQS rather than on the 1997 standards. They
indicated a strong preference that the implementation dates for the
replacement CAIR rule correlate with the SIP dates so that the states
can account in their SIPs for the reductions a new interstate rule would
provide.

	Ideas differ among states about contribution levels, thresholds to
trigger inclusion, and levels of control. However, almost every state
agreed that EPA's top priority should be to develop a rule that will
survive legal challenge. Ideas for such a rule ranged from a strictly
command-and-control regime to a rule including trading. States stressed
that a program that gets reductions needs to be in place in time for
them to meet attainment and maintenance deadlines. 

	Leslie Hulse, American Chemistry Council, asked EPA which environmental
NGOs it had spoken with and what their overarching points were. Bill
replied that EPA had heard from the National Parks Conservation
Association, Environmental Defense Fund, Sierra Club, Natural Resources
Defense Council, the Clean Air Task Force, American Lung Association,
and others. He said the NGOs were focused more on electric utilities and
stressed that older, inefficient units, that continue to operate only
because they have not been forced to make investment decisions, should
be forced to put on controls or shut down. EPA should consider all
authorities available to it such as MACT, NSPS, section 110, and section
112, as well as the different rules that could affect electric
utilities. It should then coordinate rulemakings so as to drive
utilities to invest in cleaner generation facilities.

	NGOs suggested that EPA should also consider CO2 and hazardous air
pollutants beyond mercury in developing a comprehensive plan to address
future electric generation. NGOs agreed with states about the importance
of considering sources beyond EGUs. 

	Sam Napolitano, CAMD, stressed that any decisions about future air
policy would be made by the new Assistant Administrator for Air in
consultation with other administration officials. The purpose of these
meetings is to start gathering ideas and information so that staff can
present the new Assistant Administrator with a full range of options.
Sam also noted that EPA would be doing a range of analyses on multiple
source categories and that because an analysis was being done did not
mean sources involved would be included in a future program.

	Sonja Rodman, OGC, noted that under the D.C. Circuit Court decision the
entire CAIR rule had been sent back for reconsideration and that the
Agency is exploring all available options. The replacement rule will do
more than just tinker with the existing CAIR rule. Bill added that EPA
was not expecting a legislative fix of the CAIR rule and that he
anticipated the rulemaking would continue. EPA would prefer a
legislative solution to the issue, preferably something like the Carper
3-P approach, and the Agency will work with Congress if legislation is
proposed.

V. CIBO Presentation

	Sam Napolitano noted that the purpose of the call was for EPA to hear
what CIBO members and other industry representatives think and asked
industry representatives to respond to topics in the agenda EPA had
distributed, and to share thoughts or ideas that may not be on the
agenda.

	John deRuyter, DuPont, presented data outlining the current situation
with respect to industrial sources. He began by noting that EPA's data
show a downward trend for NOx and SO2. Projected emission trends from
2005 forward also show significant reductions in those two pollutants.
He then discussed curves for marginal cost for NOx and SO2 controls
provided in the CAIR Final Rule Federal Register notice. He noted the
line indicating the $1,500 per ton cost effectiveness for NOx at the EPA
limit selected for 2015 as well as the cost effectiveness line on the
SO2 curve at $1800 per ton indicating EPA’s selected SO2 limit of
around 2.6 million tons in 2015.

	He discussed industrial boiler NOx and SO2 control cost estimates and
noted that these calibration points provided an idea of the cost, and
that the data were from a recent OTC meeting and might not be final.
However, the data show that there is a wide range in removal costs, and
that those costs are significantly higher than the highly cost-effective
controls CAIR required EGUs to install. These cost estimates are based
on an assumed 66 percent boiler capacity factor, which CIBO believes, in
many cases, normal operation is at considerably lower capacity factor,
skewing both tons removed and control costs; when the boilers are on
stand-by, the cost per ton increases dramatically.

	John noted that there is a wide range of costs because industrial
facilities, especially older ones, have very little available space,
making retrofit costs site-specific, which in some cases can be very
high. Requiring controls on all facilities would have a major impact on
operations and jobs at some facilities. SNCR and SCR installation and
operation would be very costly, as would FGD and dry FGD. Space would be
a critical issue, particularly with FGD retrofits. Also, scrubbers and
other control devices often make it impossible for companies to sell
some of the combustion byproducts. EPA should consider all of these
costs, not just the cost of control equipment.

	Bill Harnett indicated that there was some internal concern at EPA that
the court decision limited the Agency's ability to consider cost as a
factor when developing a replacement program.  EPA is still grappling
with the decision and the issue of cost-effectiveness.

	John noted that there were many combined-fuel boilers in existence and
that most served an industrial function. Most industrial and commercial
boilers use natural gas and many use byproducts as fuel, such as biomass
generators at pulp and paper mills and various off-gasses from
commercial and chemical processes. He concluded that the data he was
presenting show that NOx and SO2 levels dropped and that further
reductions (primarily from EGUs under CAIR) are expected. Even in its
current state, CAIR has driven reductions, especially in SO2 levels. 
Control costs for industrial boilers are considerably higher per ton
than those for EGUs, and the reductions gained by controlling industrial
sources are less certain. Finally, industrial sources have significant
load-variability, which also detracts from the effectiveness of
controls.

	A copy of John’s presentation is submitted as a separate document
with this summary.

VI. Discussion of CIBO Presentation

	Sam Napolitano asked John de Ruyter how confident he was in the data
presented. John noted that the data for the trends came from EPA. He was
less certain of the accuracy of the inventory data. He suggested that
the cost data were reasonable, but reiterated that because costs vary
widely from unit to unit average cost is not necessarily representative
of the actual costs a specific unit would incur. Tim Hunt, American
Forest & Paper Association, noted that AF&PA previously had shared its
best estimates of costs with EPA, which showed that on a per ton basis,
reductions from industrial sources were far more expensive than those
from EGUs. Furthermore, pulp and paper mills are already showing
significant SO2 and NOx reductions.

	Industrial sources across the board are facing challenging economic
conditions, and with the MACT rules already in place further NOx and SO2
rules could be extremely expensive. Tim noted that many industrial
sources are installing co-generation and trying to use by-products such
as biomass and off-gasses for fuel. It makes no sense to place
additional costs on sources which are working to develop green energy.

	Tim noted that EPA modeling shows that pulp and paper emissions are not
significantly impacting regional air quality. Reductions at individual
sources can be achieved through the SIP process and tailored to the
individual situation at the affected source where needed. The CAIR
replacement rule should not include industrial boilers at pulp and paper
mills and should focus on regional transport of emissions from electric
utilities, especially given the current economic situation.

	EPA asked if most facilities were using as much alternative fuel as
possible, and whether facilities were maintaining the ability to switch
back to conventional fuels. Al Clary from Eastman Chemical responded
that chemical manufacturers try to make as little of the off-gasses as
possible because it is a by-product. However, those facilities do use
all of the generated gas.  In response to environmental regulations and
the rising prices of fossil fuels, pulp and paper mills have been
increasing their already high utilization of biomass (currently about
2/3 of total energy usage) and continue to extract more from their
biomass feedstock. Most facilities are able and would want to maintain
the ability to switch back to conventional fuels in the permits due to
concerns about fluctuating energy prices and feedstock availability.

	Bill Harnett asked about how industrial sources were already affected
by MACT and BART. Tim responded that many of the paper facilities went
through BART analysis and were shown not to be contributing to Class 1
nonattainment. Just because a facility was a BART eligible unit did not
mean it ended up with additional controls, which again suggested that a
case-by-case SIP-based approach would be best, not a one-size-fits-all
approach that included all industrial boilers. Bill said that EPA did
not plan to conduct an ICR to gather data, but may rethink this
preliminary decision after consulting with EPA management; for now, EPA
will start with state-level data.

VII. Discussion of Agenda

     1. Baseline

	Given present economic conditions, CIBO members suggested EPA use the
most current data, which would include reductions achieved through the
NOx SIP Call. They suggested that using a future year for creating a
baseline would not work because of the uncertainty of possible CO2
regulations and an ever-changing economic environment.

	Sam Napolitano noted that EPA was exploring the possibility of using a
future-year baseline because additional mobile source controls will come
online in a few years, which should provide large NOx reductions. Also,
there are scrubbers and other control systems that EPA knows will come
online in the near future. Thus, the nature of the problem as it would
appear based on the 2007 data may differ from the problem that will
actually exist when the replacement CAIR program is implemented.

	A CIBO member expressed a preference for using real measured data as a
starting point. EPA could use the 2007 data in conjunction with other
data to help forecast, but it should ground the baseline in data that
had actually been measured. 2007 was the highpoint in terms of the
levels of economic activity. Thus, EPA has a clear picture of the fuel
mix at a time of high energy costs and of the impact of the NOx SIP
Call. EPA should be able to integrate that measured data with other
datasets and forecast under different economic conditions. 

     2. Quantifying Significant Contribution

	Sonja Rodman said that significant contribution was a big area to
address, with many options for the replacement rule. For CAIR, EPA
established significant contribution through a two step process. EPA
first conducted air quality modeling to determine which states should be
included in the region and then looked at the cost-effectiveness of
controls to determine significant contribution. EPA established regional
caps and developed the state budgets for each pollutant involved. The
D.C. Circuit Court ruled that EPA had failed to quantify individual
state significant contributions and thus also did not require the
specific state to eliminate its significant contribution. As EPA
develops the new rule it is considering alternate ways to define
significant contribution. The Agency welcomes suggestions.

	CIBO members noted that industrial sources generally have shorter
stacks and so their contribution to transport is inherently less than
sources with taller stacks. They suggested that further modeling would
need to account for this factor. Also, they felt strongly that
cost-effectiveness had to be considered because many industrials cannot
pass along control costs due to global competition and they have higher
cost of capital. In addition, EPA needs to note that site specific
factors for additional controls on industrial boilers are very important
and tend to drive costs up significantly.

	One Industrial member participant expressed concerns that in relying on
modeling EPA would end up requiring similar controls on all the sources
in an area when one source might be having 90 percent of the impact. It
is critical that EPA assess the difference between local emissions and
transport. Industrial sources clearly can have a high level of local
impact, but EPA should not confuse this with transport as the two must
be addressed differently. If EPA is using modeling to justify
reductions, the Agency should allow units to demonstrate that they are
not actually having an impact. Such units should be exempt from
reductions.

3. Remedy

	Tim Smith, OAQPS, raised the issue of remedy: What remedy should be
applied to the quantified significant contribution? What types of
approaches should be considered? Is the trading option practical? Tim
noted that EPA had heard suggestions ranging from a strict
command-and-control program to a trading program and various
combinations of the two. Some states expressed interest in combining
looser standards with a trading program in an effort to leverage the
increased reductions that can be gained by allowing trading.

	In response to a question from Vince Albanese, Fuel Tech, EPA indicated
uncertainty as to whether the court decision made it impossible to
incorporate trading in the replacement program. EPA believes that some
type of trading might be consistent with the decision, but there are
concerns especially about an interstate trading program. Clearly trading
as it existed in the original CAIR would not be included. EPA believes
additional assurances that reductions would take place in nonattainment
areas would need to be provided. EPA is generally supportive of trading
because modeling has shown that it works and provides deeper reductions
at a lower cost.

	John deRuyter suggested an opt-in program for industrial units. CIBO
members in general were supportive of at least some kind of trading.
They expressed concern that an intrastate trading program would not have
enough liquidity to function.

	A number of industry participants also expressed concerns about the
feasibility of requiring industrial units to put on controls. They noted
that industrial sources, more than EGUs, faced serious challenges in
raising fresh capital. Given the nature of their product and global
competition they cannot pass along price increases in the way EGUs can.

4. Affected Area/National Ambient Air Quality Standards (NAAQS)

	Which states or regions should be covered by the rule? What should the
timing of the rule look like? Should EPA start with existing NAAQS? Or,
should it try to integrate the newer NAAQS into a replacement rule?
Timing becomes a key element when considering which NAAQS to target.

	Sam Napolitano raised the issue of the NAAQS, noting that the original
CAIR was based on the 1997 standards. There is currently interest in
looking at the 2006, and possibly the 2008 NAAQS. A key question for EPA
is what standards the new rule should include to help states comply.
States have expressed interest in having as much help as possible with
the most recent NAAQS. Should EPA try to address the more recent
standards, or wait and address those through a later rulemaking?

	CIBO members agreed that one rulemaking process would be better than
three. The members again expressed concern about local emissions versus
transport emissions and cautioned the Agency to be very careful in
determining whether a particular unit was contributing to transport. Any
new rule should not consider local impacts; that should be left to the
states who can better understand site specific circumstances.

	In response to questions about the ozone season and annual program, Sam
explained that the ozone season was in response to northeastern states'
concerns about summer emissions. He noted that it was unclear whether
the replacement program would continue to have an ozone season. Sam then
raised the issue of high demand days, noting that both Connecticut and
New Jersey have done a lot of work on high demand days. He asked the
group whether they thought special attention should be paid to these
days. CIBO members expressed concern that regulating high demand days
could set a precedent for quantity over distance and suggested that high
demand days might be regulated better in a program smaller than the CAIR
replacement rule. 

	An industrial company participant also suggested that EPA bear in mind
reductions that might be gained by meeting requirements of other
regulations, especially in the context of a carbon-constrained world.
Reductions will be made in other areas, and it is important to consider
what capital investments will be required by the different rules and
possible trade-offs between pollutants. It is critical to leave long
lead times so companies can make decisions comprehensively.

	As a follow up to the meeting and in addition to that which was
discussed, it is important to consider the interrelationship of all
pollutants and energy efficiency (CO2 emissions) as it relates to the
operation of industrial boilers, especially existing boilers. In light
of this, CIBO submitted a graph showing the interrelationship of
efficiency, NOx, and CO as they relate to changes in excess air from the
optimum amount at maximum efficiency for a natural gas fired Package
Boiler. While the actual curves will be different for every boiler,
fuel, and load, the relationships will always be the same. For solid
fuel, especially high moisture biofuel, as excess air is increased
beyond the optimum level in order to obtain low CO emissions,
significant decreases in efficiency can occur.  Further increases in
excess air will lead to increased CO and VOC emissions. Consideration of
any industrial provisions under a CAIR rule should carefully evaluate
the requirements to be proposed under the forthcoming Industrial Boiler
and Process Heater MACT Rule.

VIII. Concluding Points 

	CIBO members concluded by asking EPA to ensure that the definitions for
EGUs and non-EGUs be consistent across programs, using Acid Rain
provisions as the guide. They asked that EPA pay careful attention to
the exemptions about independent power producer long-term contracts and
Combined Heat and Power operations. In addition, as CAIR gets revisited,
EPA should make sure biomass units don’t inadvertently get classified
as EGUs again.  Finally, EPA needs to consider the uniqueness of small
units creating steam for municipalities which had issues under CAIR. 

	Sam Napolitano thanked CIBO members and said EPA would take all of
their suggestions under consideration. He mentioned that meeting notes
would be sent out to all the participants and suggested that they
include additional comments as addenda to the notes. This will help
continue the dialogue process. Sam also offered to send CIBO members the
SO2 and NOx emissions data that had been shared at earlier meetings.

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