WASHINGTON, March 27 (UPI) -- White House efforts to roll back tough Clinton-era regulations on clean air in favor of market-driven approaches will not only continue the current trend of reductions in toxic industrial emissions, but will also protect the energy needs of the United States, according to a recent report from a think tank in Washington.
In the paper, "Why the New Source Review Program Needs Reform: A Primer on NSR," published by the conservative Heritage Foundation, author Dana Joel Gattuso says a current regulation program, known as New Source Review or NSR, needs to be completely restructured to reform its incentive system.
Gattuso, an adjunct scholar with the free-market, anti-regulation Competitive Enterprise Institute, told United Press International that the NSR regulations as they now stand penalize companies that innovate and embrace new technologies, while discouraging efficiency, safety and environmental improvements by industry.
"The Bush administration clearly recognizes that the New Source Review program -- not only because of the arbitrary and extremist interpretations adopted by the Clinton administration, but because it has created a wrong and perverse penalizing system -- needs to be revamped," said Gattuso. "I believe they are working under the mandate that if the Clinton administration's alterations of New Source Review are to continue, you are basically discouraging any kind of activity concerning electric utilities that addresses the reliability of electric generation. Ironically, this discourages industry from adopting cleaner-burning fuels."
Environmental Protection Agency administrator Christie Todd Whitman last week announced that her agency would move to waive air pollution permit requirements for new electric generating facilities. The waivers would require that the companies stay below thresholds, or "caps," for the release of mercury, nitrogen oxide and sulfur dioxide. Carbon dioxide was also included in the list of potential candidate toxins for a cap program originally proposed by the Bush team during the 2000 election though was not included by the administration in this initiative.
The EPA would also establish an emission trading system under which companies can sell to other firms the credits they earn based upon the amount by which the seller's emissions are lower than what is permitted by their designated caps. Companies that purchase these credits would use them to offset their failure to reach a given emission goal.
This move to scale back enforcement on power plants has been widely viewed by analysts on both sides of the issue as part of an overall attempt by the Bush administration to derail a contentious effort begun by the Clinton administration to better control toxic air emissions from all types of industrial facilities through stricter enforcement under the NSR program.
Under the original NSR statutes, EPA can mandate the installation of the best available air pollutant controls in new industrial facilities, or whenever existing plants undergo significant renovations -- known as "major modifications" -- that increase pollution output.
Gattuso as well as those in industry complain that in seeking to toughen the NSR regulations the Clinton administration decreased the threshold for "major modification" as defined in the original statutes, so it would include the "routine maintenance, repair and replacement" exemptions enacted by Congress to ensure that small changes or improvements in efficiency at a plant did not trigger an EPA review.
The report argues that the Clinton-era changes create an environment of ambiguity, making it unclear what sort of changes can be made at facilities without the facilities being forced to make other expensive modifications to limit emissions. Because of this, companies contend that under the current law, it is impossible for them to predict the cost of any repairs or maintenance.
Critics contend that these cap and trade programs and other such corporate-centered initiatives ignore the tendency of businesses to shun technological innovations that do not have immediate economic benefits.
Nat Mund, a lobbyist for the Sierra Club, said that NSR is important because it is a tool to ensure that companies make needed progress over time in reducing emissions.
"There isn't the incentive under existing law to reduce [industrial] air pollution, other than the fact that as people make decisions to retire older plants or upgrade them they are going to have to include more pollution controls [under NSR]," said Mund.
He added that NSR is an important part of the overall framework of regulations that ensure that pollution controls -- such as the stringent Clinton-era limits on promulgated soot and particulate matter which were upheld by a D.C. Federal Circuit Court Tuesday -- are properly enforced.
In her paper, Gattuso says that the NSR program has been "mired in confusion and complexity" since it began. As proof, she cites the 20-page initial NSR ruling that has been backed up with more than 4,000 pages of guidance documents and memos detailing compliance requirements under the program. She adds that some of the newer directives contradict earlier ones, further complicating matters.
Gattuso also argued that the one- to three-year processes for review and the issuance of permits under NSR could increase if Clinton-era regulatory interpretations are allowed to stand. A potential further backlog of plant reviews could increase the delay even more, she said.
She added that in an ironic twist, the current NSR regulations would have a far-reaching and devastating effect on the environment, because the tougher enforcement under NSR discourages the natural process of innovation through the modification of generating plants.
She also believes this would result in companies being less competitive in the global marketplace. According to Gattuso, this threatens the U.S energy supply: if energy generating facilities fail to become more efficient through innovation, they will fail to produce more power with fewer natural resources, and will not be able to keep up with growing demand.
Dallas Burtraw, senior fellow at the environmental policy think tank Resources For The Future, agreed with Gattuso that the NSR program is cumbersome and problematic, but cautioned that it still provides important benefits.
"NSR is very inefficiently designed but it also achieves important gains," he said. "The reason [that industry opposes NSR] is that it increases the cost of making new investments which typically do two things: increase output and increase efficiency. In general, improvement is a good thing in that it reduces cost [in the long term] and tends to have environmentally beneficial effects. Emissions at facilities tend to improve once there is investment in new equipment."
Nevertheless, Burtaw said it is a major problem that NSR does not differentiate between older, more polluting technologies and newer, more efficient ones. This effectively penalizes innovative companies, as well as those that are behind the curve.
As an example, Burtraw cited the fact that the cost of reducing nitrogen oxide emissions at a coal fired power plant can be up to 10,000 times higher than the cost of preventing an additional pound of the toxin from being released by a newer, more efficient micro turbine facility. Nevertheless, under the current NSR regulations, both plants are treated the same way and would be required to update their emissions controls under the same basic criteria.
He said this circumstance fuels NSR critics' arguments for an emissions cap and trade program like that proposed by Gattuso and the Bush Administration, because the cost to reduce a pound of emissions is not the same for the two facilities. A newer, cleaner facility would earn credits because it could cheaply keep its pollution levels below its required caps. The older, more polluting plant could purchase those credits and use them to offset its failure to meet cap standards.
Proponents contend that such flexible schemes allow companies to incorporate new emission reduction technologies naturally, and when they are most cost-effective, not when government decrees they should.
In her paper, Gattuso promotes other market-based incentives, such as emission credit trading, and a period of amnesty from review following an upgrade.
Such flexible, incentive-based approaches, backed up with accountability, can promote clean air while allowing companies to function with the market in mind, she said. Under such proposals a company could offset the cost of upgrading to the point where it was most cost effective, while still providing environmental benefits.
But Burtraw cautioned against a simple cap and trade approach, and other looser regulatory schemes, because they remove the important and necessary pressure for industrial innovation that comes from NSR.
"NSR provides a ratchet for constantly improving emissions, to reduce emissions from facilities," he said. "The environmental community is concerned that there are no ways to make progress in this area, because a cap and trade program...doesn't provide what we would expect to be constant technological improvements."
Burtaw proposed that instead of a simple emissions cap and trade program, a system could be designed where the caps are tied to the cost of compliance. Under such a scheme the caps would be tightened over time so that when newer and cheaper technologies became available, the ongoing incentive would remain for companies to bring them online.
Burtraw added that the need for pressure to innovate shows why NSR should not be eliminated wholesale or simply traded for an overall cap program to regulate air emissions, as some fear the administration is likely to do, given its electrical generating facility proposal. The valuable aspects of the NSR program can be saved, he said.
"Most economists come out against NSR as a poorly conceptualized approach to reaching this goal," he said. "It is widely acknowledged to be an administrative quagmire, and it is very troublesome for firms to understand where NSR is going. Though it is problematic, it could be improved. There is a lot of evidence that the administrative processes for NSR could be streamlined and the program could be saved."
In addition, Burtaw cautioned that environmentalists are not likely to just roll over and accept it if the administration simply dumps forced innovation from the regulatory scheme.
"The environmental movement has fought for 30 years to institutionalize a mechanism that pushes for technological improvements," he said. "That institutionalization is found in the NSR regulations. They [the environmental movement] are like a dog holding a bone: they are not going to let go of that until there is something else that institutionalizes environmental improvements over time.
