J.Pollock Blog

EPA Finalizes Good Neighbor Rule

It is unfortunate, if not shameful, that an important government agency is implementing rules that could seriously compromise the reliability of the electricity grid.  Yet, it is clear that EPA considered only the improvement in air quality and ignored the downstream impact of its “Good Neighbor” rule — higher costs and diminished reliability of electricity – in determining that the rule is in the public interest.  

This is a classic example of a government agency operating in a vacuum.  Although EPA’s mission does not include oversight of the electricity grid, it should nonetheless have coordinated its rulemaking with other agencies (FERC, NERC) that have such oversite responsibilities and account for the impacts of its rules on the public, including both the higher cost and less reliable grid.  Not to do so is a failure of governance.  

US EPA locks in ‘good neighbor’ plan to combat cross-state ozone pollution EXTRA

Wednesday, March 15, 2023 3:34 PM CT

By  Siri Hedreen
Market Intelligence

The U.S. Environmental Protection Agency finalized a rule March 15 to curb the smog that drifts over state lines, affecting downwind states’ health and ability to comply with national air quality standards.

The plan places controls on ozone-forming nitrous oxide, or NOx, emissions at industrial facilities or power plants, as mandated by the Clean Air Act’s “good neighbor” provision. The rule covers 23 states, including California and most of the Midwest, mid-Atlantic and Gulf Coast regions.

The EPA said the final rule will implement the 2015 ozone National Ambient Air Quality Standard using a combination of approaches, starting with a strengthened NOx cap-and-trade program for power plants in 22 of the 23 states. The plan also sets enforceable emissions requirements in 20 states for facilities in industries prone to impacting downwind air quality — including cement, iron and steel manufacturing — starting in 2026.

The EPA rule was a victory for the environmental and other advocacy groups that took legal action to combat cross-state ozone pollution.

Clean Air Task Force attorney Hayden Hashimoto, who represented Citizens for Pennsylvania’s Future and the Clean Air Council in a lawsuit leading to the rule, praised the EPA action in a March 15 statement.

“We are particularly pleased to see that the final rule includes limits on emissions from certain significant industrial sources of NOx, and measures for power plants that would adjust the program’s allowance budgets based on changes in the power sector, prevent excessive accumulation of banked emission allowances, and create strong incentives for large coal units to run controls through a backstop emissions limit,” Hashimoto said. “While we would like to see the scope of the rule expanded and the timeline for implementation accelerated, we strongly support this rule because it has significant potential to reduce emissions and improve air quality for downwind and frontline communities.”

The EPA estimated that the plan will reduce NOx emissions by about 70,000 tons during peak smog season in 2026, compared to the same year without the plan. Reduced emissions from coal- and gas-fired power plants will contribute to that amount by about 25,000 tons.

As a result of the improved air quality, the federal agency also expects up to 1,300 fewer premature deaths, 430,000 fewer school absences and 25,000 fewer lost work days that same year.

Power sector impact

The EPA expects the rule to drive an additional 14 GW of coal plant retirements nationwide by 2030, or about 13% of the country’s coal capacity. The impact is slightly less than the 18 GW of coal capacity retirements the EPA expected under a 2022 draft version of the good neighbor plan, which covered more states.

America’s Power, a trade group that supports the coal power sector, said March 15 that the organization is reviewing the final rule’s impact on coal.

“Additional coal plant retirements are in stark contrast to the concerns that have been raised by the North American Electric Reliability Corporation and grid operators about the possibility of electricity shortages in many regions of the country caused largely by coal plant retirements,” America’s Power President and CEO Michelle Bloodworth said in a statement.

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Article amended at 9:30 a.m. ET on March 16, 2023, to include a map.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.