Power industry braces for court air pollution ruling
Author: Valerie Volcovici
The power industry is waiting for a federal appeals court to rule on proposed emissions controls for coal-fired power plants, a decision with implications for energy sectors ranging from natural gas to coal to tradeable pollution permits.
The Court of Appeals for the D.C. Circuit is expected as soon as Tuesday to issue its decision on the Environmental Protection Agency's Cross-State Air Pollution Rule, or CSAPR. It delayed the decision on December 30, just two days before the rule was to enter force.
In making the delay, the court sided with industry groups, companies and some states that opposed compliance deadlines and said the rule could make the power market less reliable.
The EPA and environmental groups contended that the CSAPR rule would improve air quality for 240 million people across the eastern United States.
The EPA's rule aimed to control emissions from sulfur dioxide and nitrogen oxide -- pollutants that cause acid rain and smog -- from power plants in 28 mostly eastern states. The reasoning is that unhealthy emissions from those plants cross state lines.
CSAPR also established a cap-and-trade system that enabled power producers to comply with the emission limits by buying, trading and selling pollution permits.
Power generators, such as Southern Co and Energy Future Holdings, had argued that the January 1 implementation date was too soon and did not give them enough time to design and install pollution control equipment needed to comply.
The state of Texas, along with the National Mining Association and the International Brotherhood of Electrical Workers, also challenged the EPA. They said the rule caused undue financial burden on power producers and could make the power market less reliable by forcing companies to shut some older plants.
Some emissions traders have said the court decision will lift the cloud of uncertainty surrounding the market for SO2 and NOX permits, some of which have lost more than 75 percent in value since the court's December 30 stay order.
Permits for sulfur dioxide for the year 2012 were valued at $600 - $1000 per ton just days before the December court delay, according to Evolution Markets, an energy and environmental markets brokerage based in White Plains, New York,
The permits are currently valued at $150 per ton, although there is little demand from buyers.
"The market has been dormant pretty much since the end of December," said Lauren Kisling, a broker at BGC Environmental Brokerage Services in New York.
She said a decision in favor of the EPA would bring the market for tradable SO2 and NOX permits back to life, but said it would be unlikely to start immediately after the court decision.
Paul Tesoriero, director of environmental markets at Evolution Markets, said the court was unlikely to require the EPA to rewrite the rules from scratch but may ask the regulator to redo some parts of the contested regulations.
"Most people feel that they (the judges) are not totally going to remand CSAPR," he said.
Tesoriero said it would likely take the EPA a few months to redo models and tweak the rules, pushing implementation of the revised rules until at least 2013 or 2014.
Any such delay would be in line with recent Obama EPA decisions to delay rules on emissions from natural gas fracking operations until 2015.
The EPA's proposed regulations on mercury from coal-fired power plants are also set to take effect in 2015.
NATURAL GAS IMPACT
Some observers said CSAPR has a direct impact on natural gas prices, which have fallen to record lows this year.
Andrew Weissman, senior energy advisor at law firm Haynes and Boone that advises power and gas sector clients, said that if CSPAR had gone into effect as scheduled on January 1, the emissions restrictions on power plants would have forced some generators to switch from coal to natural gas.
This, he said, could have pushed up natural gas prices which have touched 10-year lows this year.
"However, without the regulatory boost from CSAPR, already rock bottom prices for natural gas have dropped even further, reaching 10-year lows this past spring," he said.
Other experts said the impact of the CSAPR decision will not be as significant, because the EPA is unlikely to be ready to implement the rule until 2013 or 2014.
Kevin Book, an analyst at ClearView Energy Partners, said CSAPR would have had a stronger impact if it had been implemented, as planned, in 2012, giving power producers a tough timetable to comply with the emissions curbs.
"The near-term horizon looks pretty clear. CSPAR is less meaningful than it was," he said.
He added that power producers are already preparing to comply with proposed EPA rules that aim to reduce mercury emissions from power plants, which are set to kick-in in 2015.
The decision is likely to "start the clock on a (coal-plant) shutdown wave that will only be slightly sooner than the shutdown wave of the Mercury and Air Toxics Standards rule," he said.
(Reporting By Valerie Volcovici; Editing by David Gregorio)