[Senate Hearing 111-1202]
[From the U.S. Government Publishing Office]





                                                       S. Hrg. 111-1202

                  OVERSIGHT: ENVIRONMENTAL PROTECTION
                AGENCY'S CLEAN AIR REGULATIONS_ONE YEAR
            AFTER THE CAIR AND CAMR FEDERAL COURT DECISIONS

=======================================================================

                                HEARING

                               before the

                       SUBCOMMITTEE ON CLEAN AIR 
                           AND NUCLEAR SAFETY

                                 of the

                              COMMITTEE ON
                      ENVIRONMENT AND PUBLIC WORKS
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                              JULY 9, 2009

                               __________

  Printed for the use of the Committee on Environment and Public Works


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


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               COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS

                     ONE HUNDRED ELEVENTH CONGRESS
                             FIRST SESSION

                  BARBARA BOXER, California, Chairman
MAX BAUCUS, Montana                  JAMES M. INHOFE, Oklahoma
THOMAS R. CARPER, Delaware           GEORGE V. VOINOVICH, Ohio
FRANK R. LAUTENBERG, New Jersey      DAVID VITTER, Louisiana
BENJAMIN L. CARDIN, Maryland         JOHN BARRASSO, Wyoming
BERNARD SANDERS, Vermont             MIKE CRAPO, Idaho
AMY KLOBUCHAR, Minnesota             CHRISTOPHER S. BOND, Missouri
SHELDON WHITEHOUSE, Rhode Island     LAMAR ALEXANDER, Tennessee
TOM UDALL, New Mexico
JEFF MERKLEY, Oregon
KIRSTEN GILLIBRAND, New York
ARLEN SPECTER, Pennsylvania

                    Bettina Poirier, Staff Director
                 Ruth Van Mark, Minority Staff Director
                              ----------                              

              Subcommittee on Clean Air and Nuclear Safety

                  THOMAS R. CARPER, Delaware, Chairman
MAX BAUCUS, Montana                  DAVID VITTER, Louisiana
BENJAMIN L. CARDIN, Maryland         GEORGE V. VOINOVICH, Ohio
BERNARD SANDERS, Vermont             CHRISTOPHER S. BOND, Missouri
JEFF MERKLEY, Oregon                 JAMES M. INHOFE, Oklahoma (ex 
BARBARA BOXER, California (ex            officio)
    officio)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
                            C O N T E N T S

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                                                                   Page

                              JULY 9, 2009
                           OPENING STATEMENTS

Carper, Hon. Thomas R., U.S. Senator from the State of Delaware..     1
Voinovich, Hon. George V., U.S. Senator from the State of Ohio...     3
Alexander, Hon. Lamar, U.S. Senator from the State of Tennessee..    66
Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma, 
  prepared statement.............................................   169

                               WITNESSES

McCarthy, Regina, Assistant Administrator, Office of Air and 
  Radiation, U.S. Environmental Protection Agency................     5
    Prepared statement...........................................     8
    Responses to additional questions from:
        Senator Inhofe...........................................    18
        Senator Vitter...........................................    19
Stephenson, John B., Director, Natural Resources and Environment, 
  U.S. Government Accountability Office..........................    25
    Prepared statement...........................................    27
Corneli, Steve, Senior Vice President, Market and Climate Policy, 
  NRG Energy, Inc................................................    73
    Prepared statement...........................................    75
LaBauve, Randall R., Vice President, Environmental Services, 
  Florida Power and Light Company................................    79
    Prepared statement...........................................    81
    Responses to additional questions from Senator Vitter........    84
Hart, Gary R., Market Analyst, ICAP Energy.......................    87
    Prepared statement...........................................    89
Scott, Douglas P., Director, Illinois Environmental Protection 
  Agency.........................................................    93
    Prepared statement...........................................    95
Korleski, Chris, Director, Ohio Environmental Protection Agency..   118
    Prepared statement...........................................   121
    Response to an additional question from Senator Inhofe.......   124
Schneider, Conrad G., Advocacy Director, Clean Air Task Force....   125
    Prepared statement...........................................   128

                          ADDITIONAL MATERIAL

Letter from Entergy to Senator Carper, July 9, 2009..............   171
 
OVERSIGHT: ENVIRONMENTAL PROTECTION AGENCY'S CLEAN AIR REGULATIONS--ONE 
          YEAR AFTER THE CAIR AND CAMR FEDERAL COURT DECISIONS

                              ----------                              


                         THURSDAY, JULY 9, 2009

                               U.S. Senate,
         Committee on Environment and Public Works,
              Subcommittee on Clean Air and Nuclear Safety,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m. in 
room 406, Dirksen Senate Office Building, Hon. Thomas R. Carper 
(chairman of the subcommittee) presiding.
    Present: Senators Carper, Alexander, Vitter, and Voinovich.

          OPENING STATEMENT OF HON. THOMAS R. CARPER, 
            U.S. SENATOR FROM THE STATE OF DELAWARE

    Senator Carper. The hearing will come to order.
    I want to welcome you one and all to this room this 
morning. We will be joined by a number of our colleagues 
throughout the morning. I expect we will have a vote, maybe a 
vote around 11 or 11:30.
    I appreciate the presence of our guests and especially 
those of our witnesses, and we thank you not only for your 
attendance, but for your preparation for this hearing. I look 
forward to hearing your statements, your comments, and then to 
your responses to the questions that we might raise.
    Senator Voinovich, good morning. You are welcome.
    Today's oversight hearing, as you know, is focused on 
Environmental Protection Agency's clean air regulations in 
light of 1 year passing since the CAIR and the CAMR court 
decisions. Senators will have 5 minutes for their opening 
statements, and then I will recognize each of our panels of 
witnesses.
    Ms. McCarthy, you are our first panel in its entirety, 
along with Mr. Stephenson. Welcome to both of you.
    Each witness will have 5 minutes or so to offer his or her 
statement to our committee. And following your panelist 
statements, we will have two rounds of questions.
    Today's hearing will continue the attention that the 
Environment and Public Works Committee is giving all this month 
to the issue of cleaning up our Nation's air and moving toward 
a clean energy economy. Today, we are shifting the focus from 
greenhouse gases to some of the other major pollutants emitted 
by our Nation's fossil fuel power plants: sulfur dioxide, 
nitrogen oxide and mercury. These pollutants are silent 
killers, causing serious health problems such as asthma, 
chronic bronchitis, cancer, children born with brain defects, 
and even death itself.
    More than 24,000 Americans die each year from sulfur 
dioxide emissions alone. Unfortunately, many of our fellow 
Americans are exposed to these pollutants every day. Six out of 
10 Americans, more than 186 million people in all, live in 
areas where air pollution levels endanger their lives. And 
these pollutants know no State boundaries. Pollution in one 
State easily moves to another, making it very difficult to 
reduce these pollutants through State regulation alone.
    Fortunately, we have the technology to make the reductions 
necessary to protect our health and grow our economy at the 
same time. Now, we have to find the right incentives for 
utilities to make the right investments and implement this new 
technology.
    Since coming to the Senate 8 years ago, I have tried to 
provide these industry incentives through multi-pollutant 
legislation, but every year I have been told that the 
technology doesn't exist or it is too complicated, or maybe we 
should just let the EPA handle it. So we have been here before. 
And despite claims that action would cripple our economy or the 
technology did not exist, Congress amended the Clean Air Act in 
1990 and implemented the first cap-and-trade program for sulfur 
dioxide power plant emissions, known as the Acid Rain Program. 
We did so at the urging, I believe, of former President George 
Herbert Walker Bush.
    Since then, it has been one of the most successful 
environmental programs in our Nation's history. Not only have 
we had 100 percent utility compliance, we also obtained greater 
emission reductions at a faster rate than we expected, at a 
quarter of the cost. Let me just say that again. Not only did 
we get 100 percent utility compliance, we did so achieving 
greater emission reductions at a faster rate than we expected 
at about one-quarter of the cost.
    Still, 19 years later, Congress has not made any 
significant changes to the Clean Air Act, and the EPA has had 
difficulties tightening and broadening power plant emission 
reductions. Recent EPA attempts to regulate sulfur dioxide, 
nitrogen oxide and mercury emissions have been thrown out of 
courts, and each decision has limited the agency's policy 
choices of how to reduce these pollutants.
    I have faith that the EPA can write new and stronger rules 
to regulate these pollutants, and I look forward to hearing how 
Ms. McCarthy and her colleagues expect to do that. But I am 
afraid that such regulations will be mired in the courts for 
years to come.
    Delays result in business uncertainty, more air pollution, 
and more costly reductions in the future. This is why I 
believe, as does my friend and colleague, our friend and 
colleague from Tennessee, Senator Lamar Alexander, that we can 
no longer wait for clean air. Together, we are working on 
legislation, we call it a 3P bill for three pollutants, that 
would reduce emissions of sulfur dioxide, nitrogen oxide, and 
mercury.
    We want legislation that does not allow backsliding on 
pollution reduction and that provides business and 
environmental certainty. And we will extend the Acid Rain 
Program to include stronger sulfur dioxide reductions and a 
national nitrogen oxide cap-and-trade program.
    We agree that cap-and-trade should not be used for toxins. 
So we are putting a plant by plant cap on mercury emissions. We 
hope to introduce legislation in the next several weeks, and we 
respectfully seek your input this morning on this effective, 
efficient and doable plan for clean air.
    I sincerely hope that today's hearing will serve as a 
reminder that we cannot forget the other Ps, those other Ps, 
SOx, NOx and mercury as we work on our 
climate itself.
    And with that, I would like to welcome and to introduce to 
one and all the Ranking Member of our Subcommittee, Senator 
David Vitter from Louisiana.
    David.
    Senator Vitter. Thank you very much, Mr. Chairman, and 
thank you for calling and leading this hearing.
    I am really eager to hear as much of the testimony as 
possible, and ask a few questions, so I will submit my opening 
statement for the record in that spirit.
    Thank you all for being here.
    [The prepared statement of Senator Vitter was not received 
at time of print.]
    Senator Carper. Thanks very much. Thanks very much for 
joining us.
    Senator Voinovich, a man who's thought a little bit about 
these issues, I know from personal experience.

        OPENING STATEMENT OF HON. GEORGE V. VOINOVICH, 
              U.S. SENATOR FROM THE STATE OF OHIO

    Senator Voinovich. Well, I missed being your Ranking 
Member, but I am, as you know, over on another committee, and I 
am so pleased Senator Vitter has taken my place as Ranking 
Member of this committee. But I must say that I am very 
interested in what this committee does.
    Senator Carper. And we are delighted that you are.
    Senator Voinovich. Thanks for holding the hearing. I want 
to thank the witnesses for being here today, and I look forward 
to their testimony.
    Today's panel does include Chris Korleski, Director of the 
Ohio Environmental Protection Agency, and I am glad that Chris 
is here. He has done an outstanding job in Ohio. Unfortunately, 
I may not be able to hear the testimony of the second set of 
witnesses because I have the Homeland Security appropriations 
bill on the floor.
    Last year, the U.S. Court of Appeals for the D.C. Circuit 
vacated the clean air interstate CAIR and the clean air mercury 
rule, CAMR. The decisions undercut years of work and unraveled 
the Bush administration's attempt to implement a comprehensive 
air quality strategy to meet the combined goals of bringing 
much of the country into attainment with the ozone and fine 
particulate matter national ambient air standards, NAAQS; 
achieving reductions in mercury emissions from coal-fired power 
plants; addressing regional haze impacts from power plants; and 
responding to State petitions to control upward sources of 
ozone and fine particulate matter under section 126 of the 
Clean Air Act.
    Generally, the CAIR implemented a cap-and-trade program to 
provide significant reductions in sulfur dioxide, 
NOx, and emissions from fossil fuel-powered 
utilities across 28 eastern States and the District of 
Columbia. And CAMR sought to usher in phased reductions in 
mercury emissions in a manner that was consistent with the 
development of technologies.
    CAIR and CAMR were an attempt to avoid piecemeal 
implementation of multiple emissions control obligations and to 
attain air quality standards in a cost-effective manner. Among 
other things, coordinating the compliance obligations of all 
three pollutants, SOx, NOx, and mercury, 
promoted efficiency enabling many companies to meet a 
substantial portion of mercury emission reduction obligations 
through the co-benefits achieved by installing pollution 
controls for NOx and SOx.
    Indeed, CAIR and CAMR, combined with clean air viability, 
were viewed as one of the most effective set of environmental 
regulations in history. In 2005, EPA estimated the cost-benefit 
ratio of these three rules to be greater than 20 to 1, with 
most of the benefits coming from the CAIR rule. And while there 
were differences of opinion on how CAIR should be implemented, 
and there is a difference as the Chairman of the committee just 
mentioned that he wants to raise the percentages, the fact is 
that the rule was generally supported by much of the regulated 
community, affected States, environmental groups. Indeed, the 
Natural Resources Defense Council intervened on EPA's behalf in 
support of the rule. There was a coming together there.
    Now, the rules have been vacated. There is no comprehensive 
and cost-effective policy to address NAAQS compliance, untangle 
the complicated web of overlapping and redundant regulations 
affecting power plants, and to bring about public health 
benefits we had hoped to achieve.
    The situation is precisely what I feared, and is why 
Senator Inhofe and I worked so hard to move Clear Skies through 
this Congress, the last Congress. As most of you recall, Clear 
Skies was more or less the legislative equivalent of CAIR and 
CAMR, and while Clear Skies did not go far enough, as I said, 
for some, passing the legislation would have at least locked 
into law emissions reduction requirements.
    Now, we are uncertain and we have a chaotic situation, and 
I believe it is incumbent on us to fix it. As you will hear 
today from several witnesses, without additional legislative 
authority, a comprehensive, uniform region-wide trading program 
cannot be developed. That is why Senator Inhofe and I intend to 
reintroduce a bill from last Congress that allows EPA to move 
forward with replacement of CAIR that ensures trading will be 
an essential element of that plan and that certainty can be 
restored to the emissions markets.
    In regard to mercury, we are faced with a question of what 
is the appropriate level of control for mercury emissions. When 
we debated mercury controls previously, reasonable people 
disagreed as to what technology could deliver. Thank goodness 
that since that time, we have seen some improvement in 
technology dealing with mercury, and I am sure the witnesses 
may mention that.
    I understand that good progress has been made in advancing 
those technologies they mentioned. However, it is less clear 
that a 90 percent control requirement can be met on a 
consistent and reliable basis for all plants. We might have to 
look at the kind of coal that is being burned at those plants 
if we are going to set requirements for it.
    So overall, I am anxious to hear from the witnesses and to 
see if we can't bring some certainty back to the table and let 
folks know where they stand so that we can move forward and 
eliminate, as I say, the chaos that is out there today. I just 
wish that we had been able to do that last year. We would have 
been farther ahead in terms of reducing NOx, 
SOx and mercury.
    Thank you, Mr. Chairman.
    Senator Carper. Thank you, Senator Voinovich.
    I agree with a good deal that Senator Voinovich has said. I 
especially agree with his comment. I wrote it down. It is 
incumbent on us to fix this, and indeed it is. And I am very 
hopeful that we will.
    Again, welcome to our first panel of our two guests. On my 
left, your right, Regina McCarthy. And we welcome you as the 
EPA Administrator for Air and Radiation. You have been in your 
post now I think for about a month, and probably it seems like 
about a year, but we are delighted that you have been confirmed 
and you are before us today as the Air Administrator.
    And alongside of her we have no stranger to this committee, 
John Stephenson. Mr. Stephenson is the Director of Natural 
Resources and Environmental team for the Government 
Accountability Office and has come before our committee a 
number of times. We welcome you back again today.
    Each of you will have roughly 5 minutes to complete your 
opening statement. The full content of your written statements 
will be included in the record.
    And before I forget it, I am just going to ask unanimous 
consent that a modified statement from Steve Corneli be 
submitted to the committee. And I would ask unanimous consent 
at this time. Without objection, that will be the case.
    [The referenced document was not received at time of 
print.]
    Senator Carper. And with that, let me just recognize Ms. 
McCarthy and ask you to proceed. Again, your full statement 
will be made a part of the record. Thank you.

 STATEMENT OF REGINA McCARTHY, ASSISTANT ADMINISTRATOR, OFFICE 
   OF AIR AND RADIATION, U.S. ENVIRONMENTAL PROTECTION AGENCY

    Ms. McCarthy. Chairman Carper, Ranking Member Vitter, 
Senator Voinovich, I really want to appreciate and thank you 
for inviting me here today to testify on the work that we are 
going to do together to mitigate the impacts of emissions from 
power plants.
    During my confirmation process about a year ago, no 
actually it was just about a month ago, I appreciated the 
opportunity to discuss our shared concerns about public health 
and environmental effects of air pollution from power plants. I 
agree with statements already made by Senator Carper and others 
that power plant emissions of NOx, SOx, 
mercury and other pollutants are significant concerns, and I am 
grateful for the Senator's leadership on this important issue, 
and I look forward to working on this together.
    As I stated at my confirmation hearing back in April, I 
care deeply about these issues, and I take my responsibility to 
protect our health and our environment very seriously. For over 
a generation, we have been hoping and expecting to 
significantly reduce emissions from power plants that cause 
impacts like premature deaths, childhood asthma and acid rain.
    We have made great progress since 1970, but we have a long 
way to go. And now we also face the daunting challenge that is 
posed to us by climate change. We now have both a great 
responsibility as well as an interesting and equally large 
opportunity to re-shape and coordinate our approach to reducing 
air pollution from power plants.
    Administrator Jackson has made it clear to me that we need 
to move forward both smartly and aggressively on the regulatory 
side to meet our mission as science and the law demands, and in 
ways that make sense, that offer flexibility without 
sacrificing human health or environmental protection, and that 
are also cost-effective.
    ``Aggressively'' means we listen to the scientists and we 
protect public health and the environment as much as we can and 
as soon as we can, and I know you share these goals as well.
    Recently, I took the first step in implementing this 
approach by issuing a notice of EPA's intent to collect 
information about toxic air emissions that are being generated 
and emitted from power plants. This data collection is 
necessary for us to set smart and aggressive maximum achievable 
control technology standards for utilities. Until we analyze 
this data, I cannot tell you how the MACT standard will come 
out. But what I can tell you is that there are some coal-fired 
power plant boilers that have already reduced their mercury 
emissions by 90 percent or more. But I will leave that further 
discussion to my good colleague from GAO who will provide you 
information from his study.
    And I can tell you that the MACT program requires that 
controls will be installed in existing sources within 3 years 
after the final rule has been issued, with the possibility of 
an extension of another year for specific sources only under 
limited circumstances.
    At the same time as we are working on the MACT standard, we 
are also working to address the problem of interstate transport 
of SOx and NOx emissions and the 
resulting fine particulate in ozone pollution across the 
Eastern U.S. We are developing a new approach, one that fits 
within the framework of the 2008 court decision that remanded 
the Clean Air Interstate Rule, so that we can reduce regional 
interstate transport of these long distance pollutants, while 
guaranteeing that each downwind non-attainment area is getting 
the reductions it is entitled to under the law. We told the 
court that we would take 2 years.
    We are moving aggressively to meet that commitment in hopes 
of proposing a rule in early 2010, with finalization in early 
the following year. It is an aggressive schedule, but we know 
it is important. We understand the need for certainty.
    There are other rules EPA is working on as well to affect 
power plants, and we are using also our non-regulatory tools to 
reduce emissions by reducing energy demand through 
conservation, energy efficiency, and the development of 
renewable resources.
    The future of our power industry wouldn't also be complete 
if I didn't talk about the need for reducing greenhouse gas 
emissions. And as Administrator Jackson has indicated, the best 
way to do that is through comprehensive energy legislation, and 
we are looking forward to working with you on that as well.
    But to sum up, we are working hard to understand the 
regulatory challenges before us, to coordinate those 
challenges, to work with industry, with environmental 
constituents and other groups to make sure that we do move 
forward aggressively and smartly on our regulatory obligations 
in ways that provide certainty so that investments can be made 
once again in this area, and we can successfully meet our 
environmental and public health challenges moving forward.
    In closing, I want to thank Senator Carper and other 
members of the committee for beginning another chapter in this 
discussion. We look forward to working with you and providing 
you the technical assistance you need to move forward.
    Thank you very much.
    [The prepared statement of Ms. McCarthy follows:]
    
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    
    
    Senator Carper. Thank you very much, Ms. McCarthy.
    And now let me call on Mr. Stephenson. Welcome.

 STATEMENT OF JOHN B. STEPHENSON, DIRECTOR, NATURAL RESOURCES 
     AND ENVIRONMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Stephenson. Thank you, Mr. Chairman, Senators Vitter, 
Voinovich, and Alexander.
    I am pleased to be here today to discuss our preliminary 
findings on the effectiveness and cost of mercury control 
technologies as well as key issues EPA faces in developing a 
regulation for mercury emissions from coal-fired power plants.
    Mercury, as you know, is a toxic element that poses human 
health risk, including neurological disorders in children that 
impair their cognitive abilities. Coal-fired power plants 
represent the largest unregulated industrial source of mercury 
emissions in the United States.
    Nearly 10 years ago, EPA determined that it was appropriate 
and necessary to regulate mercury emissions from coal-fired 
power plants under section 112 of the Clean Air Act. 
Subsequently, as you have heard, in 2005 EPA chose to 
promulgate a cap-and-trade program, rather than establish a 
maximum achievable control or MACT standard to control mercury 
emissions. However, the cap-and-trade program was vacated by 
the D.C. Circuit Court of Appeals in February 2008 before EPA 
could implement it.
    EPA must now develop a MACT standard to regulate mercury 
emissions from coal-fired plants which will require most 
existing boilers to reduce mercury emissions to at least the 
average level achieved by the best performing 12 percent of the 
boilers.
    While developing MACT standards for hazardous air 
pollutants can take up to 3 years, EPA has until July 27 of 
this year to settle or respond to a lawsuit filed by several 
environmental groups that require EPA to promulgate final 
mercury emissions standards for coal-fired plants by a date no 
later than December 2010.
    In 2005, we reported that mercury emissions reduction 
technology showed promise but that data on long-term 
performance in a production facility were limited. My testimony 
today is based on ongoing work for this subcommittee, so our 
findings are preliminary, but our analysis to date shows that 
the most promising technology, sorbent injection, has matured 
sufficiently for us to report that at least a 90 percent 
reduction in mercury emissions appears achievable and 
affordable at most power plants.
    This assessment is based on the widespread success of 
sorbent injection systems at types of boiler configurations and 
use at more than three-fourths of the U.S. coal-fired boilers. 
Specifically, the substantial mercury reductions have been 
demonstrated at all 25 boilers at 14 plants currently using 
these systems to comply with State requirements, and at 50 DOE 
and industry full scale tests at operating power plants as 
well.
    In addition, our preliminary analysis shows that the cost 
of sorbent control technology for mercury currently being used 
by power plants is far less than the cost of control 
technologies for other pollutants such as wet scrubbers for 
sulfur dioxide or selective catalytic reduction for nitrogen 
oxide.
    The cost of mercury controls varied depending upon what 
other pollution control devices were installed at the plant but 
generally averaged about $3.6 million or 12/100ths of a cent 
per kilowatt hour. If fully passed on to customers, this 
represents a potential increase in the average residential 
customer's monthly bill of only 97 cents, but the actual 
increase will depend on market conditions and the regulatory 
framework.
    For example, on rate-regulated company has reported that it 
will be requesting a consumer rate increase of only 6 cents to 
10 cents per month to install mercury controls, costing about 
$4.5 million.
    Moving forward, EPA faces key regulatory issues that will 
have implications on the effectiveness of the mercury emission 
standards: First, how it will calculate emissions reductions 
from the best performers on which the MACT standard will be 
based; second, whether it can or should establish varying 
standards for the three coal types, bituminous, sub-bituminous, 
and lignite; and third, how EPA's standard will take into 
account varying operating conditions.
    In addition, EPA must decide on whether it will use an 
input standard, the mercury content of the coal being burned; 
an output standard, emissions from the stack; or some 
combination.
    Finally, the vacating of the Clean Air Mercury Rule by 
courts has delayed the collection of data on mercury emissions 
and resolution of some technical issues with monitoring 
systems. We are pleased to note that just last week, EPA 
announced its intention to conduct an information collection 
request from power plants, which is the first step to 
establishing a utility MACT.
    Whether power plans will install sorbent inspection systems 
for mercury alone or pursue multi-pollutant control strategies 
for sulfur dioxide and nitrogen oxide as well will likely be 
driven by the broader regulatory context in the legislation you 
have heard, in which they will operate in the future.
    Mr. Chairman, that concludes the summary of my statement. 
Our final report on mercury control technology will be issued 
to you in October, and I will be happy to answer questions.
    [The prepared statement of Mr. Stephenson follows:]
    
   [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 
    
       
        
    Senator Carper. Well, thank you for that preview, and 
actually for a very encouraging preview. We appreciate the work 
that GAO does on a lot of fronts, and we are especially 
grateful for your help in this particular instance.
    Ms. McCarthy, if I remember correctly, the Clean Air 
Interstate Rule was implemented to help States with I think the 
1997 particulate matter and ozone standards. Is my memory 
correct?
    Ms. McCarthy. Yes, it is, Senator.
    Senator Carper. So we are about 12 years into this without 
regulations that are fully established. Is that correct?
    Ms. McCarthy. That is correct.
    Senator Carper. All right.
    When do you think that you or EPA will promulgate a 
replacement for the Clean Air Interstate Rule?
    Ms. McCarthy. When the CAIR rule was remanded back to EPA, 
the indication from EPA was that we would do our best within 2 
years to have a replacement rule. We are already engaged in 
that discussion with outside communities and we are heavily 
involved in the technical work that needs to be done to re-
shape a CAIR rule so that it will pass the test of time.
    Our indication now is that we are looking for a rule to 
come out in early 2010 as a proposal, with a final in early 
2011. That is an expedited schedule for us, but we are fully 
intending to meet that schedule.
    Senator Carper. All right. So roughly 2 years into this 
Administration.
    Ms. McCarthy. That is correct.
    Senator Carper. OK. And I think I know the answer to this 
question, but could this rule be litigated and create some 
further delays?
    Ms. McCarthy. It could be litigated, but the work that we 
are undergoing now is with the intent that we let science and 
the law drive this decision and that we craft a rule that is 
informed by the court actions that have been taken, and that is 
going to be able to withstand legal challenge.
    Senator Carper. All right.
    Could you talk with us a bit further about the maximum 
achievable control technology process for those that may not be 
as familiar here?
    Ms. McCarthy. Yes, I can. The maximum achievable control 
technology process is a process where we will take a rule like 
CAMR that has been found to not be acceptable to the courts and 
legal, and we will expand that for the utilities to look at all 
of the hazardous air pollutants.
    What that means is we first go out with an information 
request that looks at gathering the emissions data from across 
the country in terms of what utilities are generating in terms 
of hazardous air pollutants. And then we will set specific 
standards for meeting those emission requirements on the basis 
of some of the top performing utilities.
    So it is a standard where you must achieve good individual 
controls at your facilities based on what we believe to be some 
of the best technologies that are available. And as I think the 
GAO report is indicating, there is quite an opportunity here to 
achieve significant reductions, not just in mercury hazardous 
air pollutants, but also in additional air pollutants that will 
drive specific reductions at individual plants.
    Senator Carper. The process you just outlined for us, it 
sounds like it could take a while, even without lawsuits. Is 
that a fair statement?
    Ms. McCarthy. It is a fair statement that it is now in 
litigation, and we are working with the litigants concerning 
what type of time line we can actually commit to at EPA in 
terms of the development of that final rule.
    Senator Carper. Has the maximum achievable control 
technology process ever been litigated when regulating other 
source categories?
    Ms. McCarthy. Yes.
    Senator Carper. OK. Could you just briefly explain for us 
banked allowances? Just take a minute on that. Just talk to us 
about banked allowances please.
    Ms. McCarthy. Senator, if I may, I assume that your 
discussion is talking specifically about how it relates to this 
challenge with the utilities. And what I will say is that there 
is an opportunity as part of a trading scheme to bank 
allowances. And as we all know, trading allows reductions in 
NOx and SO2 in ways that drive 
investments so that we are getting the lowest possible, least 
possible cost associated with those reductions.
    As part of that trading process, there is an ability to 
bank allowances. In the Acid Rain Program, there are now 
significant allowances that have been banked. And now that we 
are beginning the NOx process that we began on 
January 1 of this year under the first phase of the CAIR rule, 
there have also been reductions in SO2 allowances in 
anticipation of CAIR happening.
    So those allowances can actually be used instead of 
individual reductions in the trading scheme. And the challenge 
that we face right now with this particular issue relative to 
CAIR, is that there have been significant--the good news is 
there have been significant reductions in terms of pollution, 
in terms of SO2 emissions. But as a result of that, 
there are a number of banked allowances that are sitting there 
that could be used instead of individual emission reductions, 
which is the goal that we are all looking to achieve.
    Senator Carper. All right. Thanks.
    I have a question, and I will yield to Senator Vitter.
    If the D.C. Court's decision keeps EPA from extending the 
Acid Rain Program, could all the banked allowances from the 
Acid Rain Program be worth relatively little, giving little 
incentive for utilities to hold on to them? And would this 
create, really could lead to an increase, rather than a 
decrease in air pollution?
    Ms. McCarthy. Mr. Chairman, I think you are recognizing an 
issue that is of concern to both you and to EPA. We have been 
monitoring the markets and looking at what is happening among 
the utilities. And what we are seeing is that emissions are 
continuing to go down, but that is also a reflection of the 
economy. So you raise a concern to both of us.
    Senator Carper. All right. Thank you.
    We have been joined by Senator Alexander.
    Senator Alexander, when we come to you on the questioning, 
I am going to offer you the opportunity to make an opening 
statement as well, if you would like.
    Senator Vitter.
    Senator Vitter. Thanks, Mr. Chairman.
    And thanks to our witnesses for all your work.
    Ms. McCarthy, you talked about the agency's time line for 
formally proposing the rule. I appreciate that. Will it 
continue to be a market-based approach? And how will it 
integrate the use of existing title IV Acid Rain Program 
allowances?
    Ms. McCarthy. Senator, what I will tell you is that in 
looking at doing the work we need to do before the proposed 
rule is released, we are looking closely at what the court 
actually said. And we do believe there remain opportunities for 
trading within CAIR and the CAIR replacement rule.
    The challenge for us will be that we need to address the 
central issue that was raised by the courts, which is we need 
to understand the significant contributions that are being made 
by upwind States to downwind States, and we need to make sure 
that any proposal that we put on the table addresses that 
fundamental issue.
    So we still believe that there are opportunities for 
trading. We are also looking at hybrid approaches, which look 
at the establishment of individual performance standards at 
facilities with a trading regime. So we understand the benefits 
of trading in this and we are looking to design a hybrid 
proposal, or look at trading in a way that will pass muster 
based on the court's decision.
    Relative to the SO2 banked allowances, we have 
to continue to monitor that. The court made it clear to us that 
we can't control the acid rain SO2 allowances 
through a replacement of CAIR.
    Senator Vitter. OK. Since the court's vacating the rule 
last year, has the EPA updated its modeling to determine which 
States should be included in a replacement rule? And if so, 
could you tell us if the EPA modeling indicates any changes to 
the subset of States that you expect to be subject to a 
replacement rule?
    Ms. McCarthy. As far as I know, Senator, we are continuing 
that investigation, and as soon as I can answer your question 
more specifically, I am happy to.
    Senator Vitter. OK. Compared to the rule time line, do you 
have any general notion of when we would at least know that 
sort of basic fact in terms of if the subset of States is going 
to be changed or affected?
    Ms. McCarthy. I guess the answer is I don't know the answer 
to your question, Senator, but I can take a look at it and see 
if we can get you that information in advance.
    Senator Vitter. OK. Thank you.
    Is the agency working directly with stakeholders in the 
emission markets outside of the formal comment and notice 
process?
    Ms. McCarthy. We have been doing significant outreach to 
the States, as well as to the power plant industry and others, 
looking at what we need to do for a CAIR replacement rule that 
once again provides stability and surety in terms of how 
investments will be made. We will continue to do that through 
the course of our technical investigations and through the 
course of the development of this rulemaking procedure.
    Senator Vitter. OK. How do you all choose the stakeholders 
to include in discussions? And how do you sort of publicize 
that in the spirit of the President's executive order calling 
for complete transparency?
    Ms. McCarthy. So far, we have had open discussions at 
various forums. We are happy to go and attend meetings. We will 
be using the formal rulemaking process and comments from 
everybody will be considered. But at this point, we are 
attending meetings. We are talking about it openly. We are 
looking for opportunities and advice. But we will be entering 
into the formal rulemaking procedure, and when we do that we 
will go through the comment process.
    Senator Vitter. Have you also proactively invited 
stakeholders in to discussions you have hosted?
    Ms. McCarthy. I am sorry. We have set up working meetings. 
I do not believe that those, the attendance at those meetings 
have been handcrafted or hand-picked. We have offered to have 
workshops. We have publicly spoken about those and invited 
attendees, and they have been pretty well attended.
    Senator Vitter. OK. And how is that publicized? And how is 
the list of attendees publicized? Is that on your Web site 
anywhere?
    Ms. McCarthy. My understanding is that it has been on the 
Web site. But Senator, I am happy to provide you information in 
terms of what workshops we have already done and how we have 
advertised that. And if you have suggestions for how we could 
do greater outreach, I am certainly open to those.
    Senator Vitter. Great.
    And quickly for Mr. Stephenson, I think in your GAO study 
you discuss sorbent injections and some other technologies used 
to decrease mercury emissions. Are some of these successful at 
removing more than mercury, including SOx and 
NOx? And so can they lead to reductions in those 
other categories from the same platform?
    Mr. Stephenson. Sorbent injection is primarily aimed at 
mercury. However, you can get co-benefits from emission 
reduction technologies from sulfur dioxide and nitrogen oxide. 
The reverse is true. Some of the plants, some of the boilers we 
looked at were achieving 90 percent mercury reduction with no 
additional emission technology.
    Senator Vitter. OK.
    Thank you, Mr. Chairman.
    Senator Carper. Just a point of clarification in response 
to your answer to Senator Vitter's last question. He was asking 
when we deploy the mercury emission control, do we get a co-
benefit in reduction in SOx and NOx? My 
interpretation of what you said is, no, we don't. But if we are 
putting in place technologies to reduce SOx and 
NOx, there is a co-benefit with mercury. Is that 
what you are saying?
    Mr. Stephenson. Yes.
    Senator Carper. OK. Thanks.
    OK. Senator Voinovich.
    Senator Voinovich. Yes. Again, thank you for being here.
    Ms. McCarthy, in a recently proposed rule pertaining to 
maximum achievable control technology standards for hospital, 
medical and infectious waste incinerators, EPA came up with a 
new method for setting MACT standards. We understand that this 
was determined without consideration of cost or feasibility, 
and that the EPA concedes that the new standards are so 
stringent that no facility will be able to comply.
    Is it your view that the proposed revised standards are 
consistent with the legal requirement that are based on what is 
actually achieved in practice? Two, do you think Congress 
intended in enacting the Clean Air Act to have EPA set 
technology-based standards without regard to costs or 
feasibility? And three, will you commit to undertaking a common 
sense review of this regulation with a view of improving air 
quality in a manner that is consistent with past precedent for 
setting such standards?
    I posed this question to you in writing during your 
confirmation. You promised to get back to me. To date, we have 
received no response. I note the EPA is under a court order, a 
deadline of September 15 to finalize the rule. The industry has 
told me that implementation of the proposed rule would result 
in the closure of many existing facilities, including those in 
my State of Ohio.
    I therefore ask that you move this issue to the top of your 
agenda and with a response to my specific question as soon as 
possible. I know that the industry has requested a meeting with 
you so they could talk to you about this, and I would very much 
appreciate if you would give them that meeting.
    Ms. McCarthy. Senator, thank you for raising this issue. I 
apologize if I did not provide you a timely and complete 
response, and I will certainly do that. I am happy to meet with 
industry on this issue and to take a closer look at it.
    Now, as it relates to the issues before us, you know, 
clearly on the utility MACT standard, we know that we need to 
move forward aggressively on that standard, but we also know we 
need to look at the emissions that are currently being 
generated to understand what is achievable, and to move forward 
as quickly as possible, but with an understanding of what can 
be achieved and what is doable. And I will bring that same 
level of judgment in discussion when I have that meeting with 
the industry representatives on the other MACT standard, and we 
can talk it through.
    Senator Voinovich. Well, I am real concerned about it 
because they feel that they are going to have to close some of 
the facilities based on the proposed rule that you are talking 
about. So I would like to have you spend some time with them 
and appreciate the fact that you will meet with them.
    The other thing is the whole idea behind cap-and-trade is 
that they send a price signal to encourage emission reductions. 
And ever since the court's unexpected decision in the CAIR 
case, SO2 allowance prices have been very low. In 
fact, you talked about them. They are putting them on a shelf.
    So most power plants from an economic perspective would be 
better off buying allowances and now even operating their 
scrubbers. And you know, the issue I have is why can't we fix 
this problem right now by codifying the Clean Air Interstate 
Rule? And by the way, if we did do that, codify it, that would 
not prevent Senator Carper and others from increasing the 
percentage of reduction that, you know, that they would like to 
see, assuming Congress wants to do it.
    Ms. McCarthy. Senator, this committee and Congress has 
every right to move forward to resolve this situation as you 
see fit. I guess my challenge is that in my world, which is the 
world of regulation, we also need to move forward. And we need 
to see how we align these decisions and how we provide that 
level of certainty that you are looking for as quickly as 
possible.
    Now, I do believe that we have a lot of opportunity to move 
forward, by moving forward on the utility MACT standard which 
will provide some certainty in terms of what we are looking for 
for reductions of hazardous air pollutants, and then looking at 
moving forward with CAIR as well.
    Now, the timing on this is as aggressive as we can get in 
terms of a replacement rule for CAIR. We are hoping to have a 
final rule in place by early 2011. But those are the tools that 
I have to work with, and we will certainly work together and 
hopefully in concert with one another to identify the best path 
forward.
    Senator Voinovich. Well, I will be interested in hearing 
from some of the other witnesses about where does that put them 
right now in terms of what their SIP plans are and what they 
are telling people. Because right now, it is just kind of, they 
are in limbo.
    And I have to tell you that when we put that in effect and 
they thought it was going to stick, they really moved. They did 
a terrific job. There is a great deal that was accomplished 
during that period of time, and then whoops, the court made 
their decision and then everything kind of just stopped.
    And so the earlier we can get on this, I think the better 
it is for everyone, including reducing the emissions.
    Ms. McCarthy. And I think you will hear from some of my 
State colleagues that they are interested in resolving these 
issues as well, and I think as we all are.
    Senator Voinovich. Thank you.
    Senator Carper. All right. Thanks, Senator Voinovich.
    Senator Alexander, if you would like to make an opening 
statement, you are welcome to do so before your questions.

          OPENING STATEMENT OF HON. LAMAR ALEXANDER, 
            U.S. SENATOR FROM THE STATE OF TENNESSEE

    Senator Alexander. Thanks.
    Senator Carper. I am delighted you are here. Thank you for 
your great interest and leadership.
    Senator Alexander. Thank you, Tom.
    I first want to congratulate Senator Carper for his 
consistent leadership on the issues of how we properly regulate 
sulfur, nitrogen and mercury. He and I have worked together 
ever since I have been a Senator on 3P legislation. I will only 
speak for myself in what I have to say, but I think we see eye 
to eye on much of this. And I am glad that he is calling 
attention to this.
    Here is my statement. I hope, and I would echo what Senator 
Voinovich said, and I will ask a couple of questions. But I 
would hope, Ms. McCarthy, that we can move as rapidly as we can 
to reinstate the CAIR rule. I gather you do, too. And it is 
very important for all of the reasons that are suggested.
    I have also introduced legislation on limiting carbon for 
dealing with global warming, but we really don't know what to 
do with carbon yet. We do know what to do with sulfur, nitrogen 
and mercury. And we know that for the foreseeable future, we 
are going to have to burn coal.
    And my general view of it is that we ought to regulate 
sulfur, nitrogen and mercury and get on with it as rapidly as 
we can, and chalk it up as a cost of doing business for burning 
coal, and know that it is going to be a part of our energy life 
for the next 10 or 20 years or so until we find some other 
alternative way of powering a country that produces 25 percent 
of the gross domestic product in the world and uses 25 percent 
of the electricity.
    So I think you have strong bipartisan support and interest 
from the Congress in a reasonable, effective CAIR rule. And I 
will be asking you in a minute if there is anything else that 
you think we can do that will make it easier for you to achieve 
that goal.
    One reason I have worked with Senator Carper on these three 
pollutants is because I don't want sulfur, nitrogen and mercury 
to get lost in all of the talk about carbon. I mean, all of 
them are important, but Tennessee is 10th highest among States 
for sulfur emissions; 12th for nitrogen. We have 800,000 people 
with chronic lung disease, according to the American Lung 
Association.
    The Great Smoky Mountains National Park, which is 2 miles 
from my house, is the most polluted and most visited national 
park in America. The conservative Republicans who live around 
there are for clean air because they breathe the air, and they 
know tourists come there to see the Smokys, not to see smog. So 
we are all in favor of good, strong national standards for 
sulfur, nitrogen and mercury in our part of the world.
    And in fact, we know that we can't continue to recruit auto 
suppliers and auto plants to Tennessee unless there are strong 
national air pollution standards because by ourselves we can't 
clean up the air enough because so much of it blows in from 
other parts of the country.
    So I am one Senator who believes that we obviously have 
scrubbers and SCRs and a way to deal with mercury at a 90 
percent level, and we should just get on with it. And I am sure 
there are reasonable questions that can be debated back and 
forth, but that is my general view. And I hope that you will 
make that a top priority.
    And I guess my main view is, while we are figuring out what 
to do with carbon and how to do it, I see no need whatsoever to 
delay for a minute what we already know how to do about sulfur, 
nitrogen and mercury. That is my view.
    Now, may I switch to questions, Mr. Chairman?
    Is there anything that we here can do to make it easier for 
you to enact a CAIR rule more quickly?
    Ms. McCarthy. Senator, first let me thank you for your 
leadership on this issue as well. I know we have spoken about 
this individually, and I share your concern that we move as 
quickly as possible. This is a less complicated issue than many 
we deal with, and as you heard from Mr. Stephenson, the 
technology is there for many of these issues. And we know we 
need to move this forward.
    And so you have my pledge that this is a priority, not just 
for EPA and the Administrator, but for me personally.
    Senator Alexander. But is there anything we can do to make 
it more rapid than early 2011?
    Ms. McCarthy. That is a good question. In terms of a 
regulatory process, we think we are moving as expeditiously as 
we can through the regulatory process, and as open as we can in 
terms of our outreach on this issue so that when we actually 
move toward regulation that it will stand the test of time. 
That is going to be our challenge.
    I would just encourage you to continue the dialog. I 
encourage, through Senator Carper, EPA will be there to provide 
you technical support in modeling resources so that you can 
take a look at this issue and continue to engage all of us in 
focusing our attention on this.
    Senator Alexander. If we move ahead, Senator Carper has 
talked about moving ahead with legislation on three pollutants, 
and I am very much inclined to join him in that, as I have 
before. Will that make it harder or easier for you to do a 
rule? Or does it matter?
    Ms. McCarthy. To me, Senator, it doesn't matter as long as 
we understand that our resources will be going to both efforts, 
and as long as you understand that my charge from the 
Administrator is to move as far and as fast as we can to get 
the reductions that we need for public health and the 
environment.
    Senator Alexander. So you believe that you have sufficient 
authority now to reinstate a regional CAIR rule by early 2011. 
Is that correct?
    Ms. McCarthy. I believe that we do. And it is not just the 
CAIR rule, Senator, it is also the utility MACT standard 
because I think that what you and I are both trying to do is to 
set a pathway forward that utilities can understand and begin 
to target their investments wisely.
    Senator Alexander. Right.
    Ms. McCarthy. While we are not seeing utilities not running 
their scrubbers and taking their SO2 allowances and 
using those instead, it could happen. You know, we are doing 
everything we can to move forward quickly and to work with 
States where they do have some authority to mitigate that and 
to prevent that from happening. But we need to run far and we 
need to run fast together.
    Senator Alexander. I suspect it would be helpful to utility 
executives to know that you are not the only one interested in 
reinstating the CAIR rule as they are sitting in their board 
rooms making their decisions about whether to invest in an 
expensive scrubber or equipment for mercury, that there is 
substantial support in Congress to do that even if you can't.
    Ms. McCarthy. And my sense is that the utilities will be 
participating in your process to look at legislation, and I 
have already met with a number of the major utilities to talk 
to them about our efforts to coordinate our regulatory process, 
how quickly we want to get that done and our interest in 
providing them that path to certainty that they are looking 
for.
    Senator Alexander. Would you be kind enough to supply me 
with some estimate of what percent of the coal plants in the 
country have scrubbers; what percent have SCRs?
    Ms. McCarthy. I would be happy to provide you that 
information.
    Senator Alexander. And then I have one other question, 
something you said attracted my interest. I don't want to get 
off on climate change very much. But you said that the best way 
to deal with climate change is comprehensive energy 
legislation. When dealing with fuel, do you think that cap-and-
trade is more effective at reducing carbon than a low carbon 
fuel standard?
    Ms. McCarthy. Oh, I am sorry. Someone was saying something.
    Senator, we can take a look at that. I know that there were 
changes in the Waxman-Markey bill and that there will be other 
conversations here on the Senate side.
    Senator Alexander. No, but my question is, there are two 
different ways to deal with fuel, which is 30 percent of 
carbon: cap-and-trade or a low carbon fuel standard. Which one 
do you think is more effective?
    Ms. McCarthy. I think both of them have opportunities for 
effectiveness. I will tell you that when I was in Connecticut, 
we joined with other New England States in looking at the 
development of a low carbon fuel standard. There is tremendous 
opportunity.
    Senator Alexander. Yes, but, well do you really think a 
cap-and-trade is an effective way to deal with fuel?
    Ms. McCarthy. I believe that you could do it both ways.
    Senator Alexander. Well, I would like to urge you to 
examine that, because we have had testimony before this 
committee that cap-and-trade--by Oak Ridge scientists--that 
cap-and-trade was a very inefficient way to deal with fuel 
because it raises the price, that is for sure, but it doesn't 
reduce the carbon because it only raises the price by 10 or 20 
cents, and that is not enough to change behavior. That is 10 or 
20 cents that adds to the cost of people driving. It is 10 or 
20 cents that might be going into the Highway Trust Fund.
    And why would we impose a complex cap-and-trade system on 
fuel, which is 30 percent of carbon, when we could use a low 
carbon fuel standard, is my point. And then, of course, if I 
had more time, I would go over into the smokestacks part and 
say instead of a big complex cap-and-trade, why don't we just 
build nuclear power plants, and as we open them, close some of 
the dirtiest coal plants.
    I think we have gotten into the situation of taking a good 
idea, renewable energy, and expanding it until it doesn't work. 
I didn't mean to get off very much on climate change today, but 
I would like you to ask you to look at the effectiveness of a 
low carbon fuel standard opposed to cap-and-trade for dealing 
with carbon from fuel.
    Ms. McCarthy. Senator, I know this is a discussion that we 
will be having and I will make sure that I am educated by 
testimony that has been given to you in the past, and we will 
have a good discussion as a bill is moved through the Senate.
    Senator Alexander. Thank you for your time.
    And Senator Carper, thank you for inviting me to join you 
today.
    Senator Carper. Delighted you are here. Delighted to work 
with you on these issues.
    Let me go back to something I think you said to one of my 
colleagues earlier. And I think you were talking about the 
authority to allow for trading under a revised CAIR rule. And I 
think you said that EPA had the authority to do that. Were you 
talking about interstate trading or intrastate trading?
    Ms. McCarthy. Senator, I was trying to make the distinction 
that in the court case, what the court said was that EPA hadn't 
effectively identified and dealt with the significant 
contributions from one State that would contribute 
significantly to non-attainment or the maintenance of 
attainment in another State. It didn't specifically say that 
you could not do trading.
    And so we are looking at that court decision specifically 
because we believe that our task now is to do what the court 
told us to do, to understand better the relationship between 
one State and another in terms of interstate transport. And we 
believe that we can look at trading regimes that are either 
intrastate, that are closer, more regional, that are maybe 
tighter that can meet the standards, the test that the court 
has given us, or that are combined with performance standards.
    So we don't believe that trading is off the table by any 
means. We are trying to meet the challenge that the court 
provided us without giving up the flexibility and the cost-
effectiveness that trading can provide for NOx and 
SO2.
    Senator Carper. All right. Fair enough. Thank you.
    Let me talk to you just a little bit more about the Acid 
Rain Program if we could. Do you believe that the Acid Rain 
Program was a success? And if so, what do you think are a 
couple of major reasons why it was successful?
    Ms. McCarthy. Unequivocally, yes, I do believe it was a 
tremendous success. I think part of its success obviously is in 
the reductions it has achieved, and the fact that it has 
achieved those reductions in a cost-effective way, at a cost 
that was substantially lower than industry predicted. And I 
think that it was the basis for us to look at the development 
of a CAIR rule in the past Administration, and it is an 
opportunity for us to understand the value that trading brings 
to the table now, and to try to keep those advantages, while we 
recognize that trading is not necessarily appropriate for other 
pollutants like toxic air pollutants.
    Senator Carper. All right. I want to ask another question. 
I think I know the answer to this question. We sort of talked 
at it or around it already. But I would just like to ask for 
the record, and that is do you believe that legislation with 
targets and timetables for mercury, for nitrogen oxide, for 
sulfur dioxide, could give certainty for environmental 
reductions and business decisions?
    Ms. McCarthy. I think that legislation certainly can 
provide certainty, but I also would indicate to you that I 
think regulations done well and done in a coordinated way can 
work as well.
    Senator Carper. Good. Thanks.
    And for Mr. Stephenson, with what GAO has found so far, if 
EPA used mercury technology currently deployed today, what kind 
of percentages would they likely set for a mercury-only MACT?
    Mr. Stephenson. What our finding is so far is that the 
actual demonstrations on operating plants and the DOE test 
combined represent over 75 percent of the power plant 
configurations and technologies that are out there now. We are 
saying that at least 90 percent is probably achievable.
    Senator Carper. All right. Thank you.
    Could you clarify how many States already have fossil fuel 
plant mercury emission mandates? And do most States take an at-
the-stack approach?
    Mr. Stephenson. I am not sure about the latter part. There 
is about 20 or so States that have mercury-specific legislation 
ongoing. There are four States, including yours, that they are 
actually implemented so far. I am not sure how many use a stack 
approach versus a----
    Senator Carper. In the States, do you have any idea what 
the average reduction requirements are?
    Mr. Stephenson. Excuse me?
    Senator Carper. In the States that have them, do you have 
any idea what the average reduction requirements are?
    Mr. Stephenson. I have a table in front of me. The top 
percentage is a 90 percent reduction. Some call for 80 percent 
reductions. Some call for 40 percent of the largest four 
utilities. There is a variation across the board.
    Senator Carper. All right. Thank you.
    How much is GAO finding mercury technology costs when 
compared to other clean air technologies such as scrubbers? I 
think you spoke to this earlier, but I want you to go back to 
it.
    Mr. Stephenson. Yes, it is very inexpensive. The average 
cost of the plants that are actually using sorbent injection 
now is only $3.4 million. That sounds like a lot, but converted 
to kilowatts per hour, it is less than 12/100ths of 1 cent. And 
likely the increase in a resident's monthly bill would be 
certainly less than $1 and probably 10 cents a month.
    Senator Carper. Per month?
    Mr. Stephenson. Yes.
    Senator Carper. All right.
    And finally, have you found facilities that could get much 
greater mercury reductions but are not doing so because they 
are not mandated by either the Federal or the State government 
to do that?
    Mr. Stephenson. Absolutely. I mean, that is the reason for 
a need for a MACT standard. There are many who are not. The 
ones that are in compliance now and already demonstrating this 
capability are because there is a State law. A Federal law that 
would affect all 491 plants would achieve the same kind of 
results, in our opinion, that those States have achieved.
    Senator Carper. So let me see if I understand this. We have 
each year, Ms. McCarthy I am told, 600,000 babies born whose 
moms have high levels of mercury. We know that we can reduce 
emissions by roughly 90 percent at these coal-fired power 
plants, at a cost of maybe not much more than $1 a year for 
consumers. I have no idea what the cost-benefit analysis of 
that would be, but it has got to be off the charts. What do you 
think?
    Ms. McCarthy. I will tell you, Senator, just to confirm 
your suspicions, almost half of the mercury emissions in the 
U.S. are from these power plants. So it is a significant public 
health, as well as an environmental issue.
    Senator Carper. Senator Vitter.
    Senator Vitter. No.
    Senator Carper. OK.
    Our thanks to both of you. Some of my colleagues who could 
not be here will want to submit some questions for the record. 
We appreciate your presence today. We appreciate your 
preparation for today's hearing, and for your responses today. 
And we would appreciate your prompt responses to any other 
questions that we submit to you. You are both doing great work. 
You make a good team, and we appreciate that teamwork and your 
presence today. Thanks so much.
    As our second panel approaches the witness table, I am just 
going to go ahead and begin their introductions, if I could.
    On this panel, first we have Steve Corneli. Mr. Corneli is 
NRG Energy's Senior Vice President of Market and Climate 
Policy. We are delighted that you are here. Welcome. Nice to 
see you again.
    Next we have Mr. Randall R. LaBauve. I understand you are 
the Vice President, Environmental Services, for the Florida 
Power and Light Company. Mr. LaBauve.
    Our third witness, and I am just going to stick with the 
order in which our witnesses are sitting before us, Mr. Hart, 
Mr. Gary Hart. You look different than your pictures.
    [Laughter.]
    Senator Carper. But you still look good, and we are happy 
you could be with us today. Mr. Hart is the Market Analyst for 
ICAP Energy. Is it ICAP? Is it OK to call it ICAP? Prior to 
ICAP Energy, he spent 28 years with Southern Company as their 
Manager of Emissions Trading.
    Next, Mr. Chris--is it Korleski? Oh, I am sorry. You 
fellows are sitting in different order than my notes have been 
prepared, but that is OK. I will get it right.
    Next, Doug Scott. Mr. Scott is Director of Illinois 
Environmental Protection Agency. In addition to being its 
Director, he served 2 years as Chair of the Air Committee for 
Environmental Council of the States. Great to see you.
    Now, Chris Korleski. And Mr. Korleski is Director of Ohio 
Environmental Protection Agency. And he was before our 
subcommittee I think around this time last year discussing this 
same issue. Very nice to see you again. Thank you for joining 
us today.
    And finally, Conrad Schneider. Mr. Schneider is the 
Advocacy Director for the Clean Air Task Force, and has been, 
again, before our committee in the past discussing clean air 
issues. And we are delighted that you have been willing to come 
back. Sometimes people refuse to come back a second time, but 
you are nice to do that.
    I am going to ask you to hold your statements to about 5 
minutes, and if go much over that, I will have to rein you in, 
but hopefully I won't have to do that. But we are delighted 
that you are here. We look forward to a very good discussion. 
Thank you.
    Mr. Corneli.

 STATEMENT OF STEVE CORNELI, SENIOR VICE PRESIDENT, MARKET AND 
                CLIMATE POLICY, NRG ENERGY, INC.

    Mr. Corneli. Thank you, Chairman Carper and members of the 
subcommittee. I am happy to testify today on behalf of NRG 
Energy about ways to reduce the emissions of sulfur dioxide, 
nitrogen oxides, and mercury.
    NRG owns about 23,000 megawatts of power plants, including 
fossil, wind and nuclear resources, and we are actively 
developing new nuclear, new wind, and new solar resources as we 
speak.
    We are also a member of the United States Climate Action 
Partnership. We are strong supporters of cap-and-trade 
legislation for climate change. And we look forward to working 
with all of you in addressing that issue in the weeks and 
months to come.
    We also take other missions very seriously, and we spent 
over $400 million in the last 5 years reducing our emissions of 
SO2, NOx and mercury. We have a total of 
about $1.3 billion of planned spending on those emissions in 
the next 5 years or so.
    At the start, I would like to say that we really liked 
CAIR. And we are supporters of that approach. But given the 
court's remand to CAIR, while we hope the rulemaking process 
can proceed, we really think an economically responsible and an 
environmentally effective rule would be advantaged by 
legislation that would give specific authorities to the EPA.
    I would like to talk today about four principles that, in 
our view, could guide such legislation. First, we think, as you 
pointed out, Senator Carper, cap-and-trade and the Acid Rain 
Program have been an unqualified success, a stunning success, 
and the Nation owes it to its citizens, its businesses, and its 
economy to build on that success in addressing these other 
emissions, with the exception of mercury.
    According to EPA, as you noted, the emission reductions 
have been over 40 percent at well less than half of the 
projected cost, and we should build on that. So to do that, we 
think Congress should clearly authorize EPA to use cap-and-
trade to address regional and national emissions transport 
problems under section 110(A)(2)(d) of the Clean Air Act; 
should expressly authorize EPA to create a regional 
NOx program similar to that established under CAIR; 
and should modify title IV to authorize the use of acid rain 
program allowances to reduce the transport of SO2 
emissions that contribute to fine particle non-attainment 
problems and help keep people from seeing the Smoky Mountains 
when they visit Senator Alexander's beautiful State.
    This will help provide the legal continuity that the 
business community needs to actually invest the billions of 
dollars that we plan on spending to address these emissions. 
But we also need to assure the economic continuity of the 
program.
    So our second principle is to make sure we do that by 
reducing the emission caps in a timely manner, consistent with 
the expected deployments of technology, to keep the prices at a 
stable level and avoid precipitous price crashes and volatility 
that otherwise can, as you pointed out, make these investments 
essentially worthless.
    A third principle, in our view the cap-and-trade program 
should continue to use the reasonable free allocation of 
allowances, at least in a partial way, to avoid punitive 
burdens on companies and on their customers that must invest 
these billions of dollars to achieve the needed reductions.
    Our analysis suggests that a full auction of SO2 
and NOx allowances could easily cost large fossil 
fuel companies $100 million or so per year. In our view, there 
is absolutely no reason for such punitive cost burdens when 
reasonable allocations such as under the current approaches 
will lead to the same environmental results, while keeping the 
cost of compliance much lower for the affected companies and 
many of their customers.
    In addition, we think banked SO2 allowances 
should be useful for compliance, with a discount, as in the 
CAIR program.
    Finally, we think the implementation of SO2 and 
NOx cap-and-trade systems should anticipate and 
coordinate with the emerging climate change bill, and 
especially the technology deployment and emission reductions 
that we think are likely to result from the automotive sector, 
the transport sector, and the power sector as those sectors 
adopt low carbon technologies.
    Post-combustion, carbon capture and sequestration, more 
nuclear, electric cars, higher efficiencies, all of those will 
tend to reduce the 3Ps from other sources, as well as from the 
power sector. We have to invest billions on that stuff, too, so 
we think an approach that facilitates and encourages the 
private investment and does so in a coordinated way is what you 
should all shoot for, and we look forward to working with you 
on that.
    And I would be happy to answer any questions you have.
    [The prepared statement of Mr. Corneli follows:]
    
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    Senator Carper. You bet. We look forward to working with 
you as well.
    Mr. LaBauve. Welcome. Please proceed.

STATEMENT OF RANDALL R. LaBAUVE, VICE PRESIDENT, ENVIRONMENTAL 
           SERVICES, FLORIDA POWER AND LIGHT COMPANY

    Mr. LaBauve. Mr. Chairman, Members of the Subcommittee, 
thank you for the opportunity to testify today. My name is 
Randall LaBauve, and I am Vice President, Environmental 
Services for Florida Power and Light Company.
    Senator Carper. Sir, is your microphone on? Just double 
check.
    Mr. LaBauve. Now it is.
    Senator Carper. Good. What was your name? No, go ahead.
    [Laughter.]
    Mr. LaBauve. FPL Group is a leading clean energy company 
with approximately 39,000 megawatts of generating capacity and 
more than 15,000 employees in 27 States and Canada. FPL Group's 
principal subsidiaries are NextEra Energy Resources, the 
largest generator of renewable energy from wind and sun in 
North America, and Florida Power and Light Company, which 
serves 4.5 million customer accounts in Florida and is one of 
the largest regulated electric utilities in the country.
    Today, the electric energy sector is at an environmental 
crossroads. While some companies like FPL Group have 
transitioned to the no and low emissions generation 
technologies of the future, other companies are stalled in an 
untenable past. As such, the environmental decisions that the 
Congress and the agencies make will dictate billions of 
dollars' worth of future decisions. But perhaps more 
importantly, these decisions also stand to reward and/or punish 
companies for the actions they may or may not have taken.
    When CAIR was promulgated, its legality was challenged by 
numerous companies, including FPL Group, in various States. The 
D.C. Circuit Court decided in July, 2008 that CAIR was 
fundamentally flawed, and EPA was directed to rewrite the rule. 
The court found many flaws in the rule including three which we 
believe are significant to future EPA regulations.
    First, the court found that the proposed emissions trading 
program would not necessarily bring all areas into attainment 
as required by section 110 of the Clean Air Act. Second, the 
court ruled that EPA had no authority to terminate or limit 
sulfur dioxide emission allowances under title IV of the Clean 
Air Act. Finally, upholding FPL Group's challenge, the court 
ruled that EPA had unlawfully acted beyond the bounds of its 
statutory authority by utilizing fuel adjustment factors to 
reallocate NOx allowances from cleaner generation to 
those utilizing coal-fired generation.
    Unfortunately, the issues the court identified will not be 
easily remedied by EPA. Without significant revisions to the 
Clean Air Act, the EPA likely cannot rewrite CAIR to include 
the currently proposed program measures. This may leave EPA 
little choice but to develop a draconian command and control 
rule that would be extremely costly and would certainly lead to 
further litigation.
    Therefore, it is now incumbent on the Congress to act and 
to provide EPA clear legislative direction to develop effective 
and equitable rules. Since the court's ruling, there have been 
several calls for a quick fix to codify the existing CAIR 
proposal. However, such an overly simplistic rushed effort to 
avoid the court's decision simply isn't practicable.
    Codifying CAIR will not address the growing complexity of 
rules that are staged to affect electric generating facilities, 
and will not provide a comprehensive solution to all the 
confusing and overlapping regulations that will result in 
additional litigation, create economic uncertainty, and affect 
future electric generating reliability. In other words, 
inaction isn't a choice.
    But instead of a rushed and incomplete half measure, 
Congress should take on the task and enact a comprehensive 
national policy that addresses the various emission reduction 
programs currently being developed by EPA. We need Congress to 
develop a comprehensive 3P bill that provides protective and 
reasonably attainable reductions of SO2 and 
NOx emissions, incorporates the regulation of 
mercury and other hazardous air pollutants; and corrects the 
flaws in CAIR.
    Without legislation, EPA's current patchwork of Clean Air 
Act and court decision-driven rule development will continue to 
be a stifling burden to reducing emissions and achieving 
industry compliance.
    The legislation should establish an efficiency-based cap-
and-trade program to distribute emission allowances without 
inequitable fuel adjustment factors, initially utilizing free 
allocations of a percentage of the allowances, and then 
transitioning to a 100 percent auction of allowances.
    The legislation should also include direction and authority 
for EPA to utilize a market-based trading program that will 
reduce the downwind impact of emissions to non-attainment areas 
and include assurances that attainment standards will be met.
    FPL Group believes that only Congress can effectively 
address the confusing and incomplete patchwork of onerous air 
emission regulations that are stifling the decision processes 
for upgrading, maintaining, repowering, and building new power 
plants.
    As such, we commend the Chairman for taking on this issue 
and stand ready to work with this subcommittee to pass a 
comprehensive three-pollutant bill that will provide the 
necessary certainty to reduce pollution and advance our 
Nation's energy policy.
    Thank you.
    [The prepared statement of Mr. LaBauve follows:]
    
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    Senator Carper. Mr. LaBauve, thank you very much for that 
statement and for being here today.
    Mr. Hart. Gary R. Hart. Welcome.

          STATEMENT OF GARY R. HART, MARKET ANALYST, 
                          ICAP ENERGY

    Mr. Hart. Good morning, Chairman Carper and to the 
distinguished members of the committee.
    I appreciate the opportunity to appear before you and 
discuss the implications and impacts of the recent court 
decision on the emissions trading markets.
    My name is Gary R. Hart. I represent ICAP Brokerage as a 
Market Analyst. Prior to my affiliation with ICAP, I spent 28 
years with the Southern Company and retired as their Manager of 
Emissions Trading in late 2006. In that capacity, I managed a 
system-wide bank of emission allowance holdings valued at over 
$4 billion.
    I helped found the trade association known as the 
Environmental Markets Association and was part of a delegation 
to Beijing to instruct the Chinese government and academia on 
how to implement a cap-and-trade program. I speak frequently on 
this, and have been quoted in things such as Wall Street 
Journal and Fortune and was recently quoted in the Washington 
Post on the Waxman-Markey bill.
    I have been really fortunate to watch cap-and-trade grow 
from a theory or concept included in the 1990 amendments to the 
Clean Air Act, into a fully functioning policy tool providing 
real environmental benefits to our citizens. Even groups such 
as the Environmental Defense Fund published a pamphlet in 
September 2000 entitled, From Obstacle to Opportunity--How Acid 
Rain Emissions Trading Is Delivering Cleaner Air.
    In my opinion, as compared to command and control, market-
based solutions such as cap-and-trade offers the following 
positive advantages. It allows for compliance options or 
flexibility. It creates incentives to over-comply and sell 
those excess allowances back into the market. It establishes 
market prices to include in the unit dispatch equation, thus 
forcing cleaner units to run first and at greater capacity 
factors. And it really forces the economic allocation of 
capital dollars.
    In March, 2005, EPA promulgated the CAIR and CAMR rules and 
from the regulated entity perspective, thousands of man hours 
were expended in developing long-term compliance strategies. 
Complex computer models were used to balance the cost of 
installing technology against the cost of relying upon the 
allowance markets to reach a least cost compliance strategy.
    In many cases, it was determined that the needed 
technologies could not be installed in time, and hence 
decisions were made to purchase emission allowances for future 
compliance purposes. With the court ruling vacating the CAIR 
rule, we now find ourselves in a market where there is massive 
uncertainty as to the future viability of SO2 and 
NOx markets, and this is coupled with massive 
holdings of emission allowances that were purchased in 
anticipation of a two for one surrender beginning in 2010 for 
SO2 compliance.
    In theory, SO2 and NOx allowance 
market equilibrium prices should represent the next incremental 
cost to install control equipment, i.e. scrubbers or SCRs, on a 
unit and are expressed typically in dollar per ton removal 
costs. Currently, this 20-year levelized cost for an 
SO2 scrubber is estimated to be between $750 to $900 
per ton, yet due to these other factors, again the 
SO2 market is now trading well below $100. The same 
equilibrium cost for annual NOx has been estimated 
to be in excess of $2,000 per ton to put on an SCR, and yet 
right now NOx allowances are trading at 
approximately $1,100.
    Wait and see seems to be the prevailing attitude in these 
markets. This is further reinforced by an article in the April 
1 issue of Air Daily where Sam Napolitano, the Director of the 
Clean Air Markets Division at EPA, was quoted as follows: 
``While no inferences should be made from last week's letter, I 
am urging buyer beware. Probably the trading allowances in the 
next 2 years is on good ground, but after that, it's not so 
good.''
    The results of the annual 2009 EPA auction pointed to a 
real lack of confidence in these markets, again due to the 
court decisions. The 2009 vintage SO2 allowances 
sold at an average price of only $69.74, which was like the 
second all time low price, and future 7-year vintage allowances 
sold for only $6.65.
    I refer to July 11, 2008, in my presentations as really 
``Black Friday'' in the emissions market. Again, SO2 
prices fell from $314 on the morning of July 11 to close at 
$115, and annual NOx prices fell from $4,800 down to 
$1,100 by the close of the day.
    Cap-and-trade programs established by Congress and the EPA 
to deal with SO2 and NOx emissions have 
truly been an environmental success story, as you can see from 
my attached chart. Unfortunately, it appears the EPA has been 
painted into a corner and can only respond to the court with 
some type of command and control regime. There was a great deal 
of effort put forth in late 2008 to attempt to give the CAIR 
rule legislative authority. I would encourage the members of 
the committee to again consider such a focused technical legal 
fix to CAIR to restore much-needed confidence in these markets.
    I wish to thank the distinguished members of the committee 
for holding this hearing and allowing me to share my views on 
this most important matter with you.
    Thank you.
    [The prepared statement of Mr. Hart follows:]
    
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    Senator Carper. Thank you, Mr. Hart. Thank you very, very 
much.
    Mr. Scott, please proceed. Welcome.

STATEMENT OF DOUGLAS P. SCOTT, DIRECTOR, ILLINOIS ENVIRONMENTAL 
                       PROTECTION AGENCY

    Mr. Scott. Thank you very much, Chairman Carper, Senator 
Voinovich, Senator Alexander. I appreciate the opportunity to 
be here with you today.
    I have been the Director of the Illinois EPA for 4 years, 
and during that time period we have entered into extensive 
regulatory negotiations and rulemaking on just the subject we 
are talking about today, at the State level to address sulfur 
dioxide, nitrogen oxides and mercury, specifically addressing 
those emissions from coal-fired power plants in our State.
    We get about 40 percent of our electricity from coal-fired 
power plants, and they represent the largest source of man-made 
emissions of mercury and sulfur dioxide, and one of the largest 
sources of nitrogen oxide in our State. We are home to 21 large 
coal-fired power plants that operate electric generating units.
    We have made exceptional progress in the last few years in 
reducing the emissions that contribute to ozone and particulate 
matter air pollution as well as the toxic mercury emissions 
that deposit into and contaminate Illinois' waters and fish.
    In particular, we reached landmark multi-pollutant standard 
agreements with the three largest coal-fired power plants in 
our system. They represent about 88 percent of the 17,000 
megawatts of coal-fired electric generating capacity and 
account for hundreds of thousands of tons of air emissions each 
year.
    We have what we call multi-pollutant and combined pollutant 
standards, MPS and CPS, that we entered into agreements with 
these companies, and they will improve Illinois and regional 
air quality dramatically by reducing the three pollutants we 
have been talking about today.
    The agreed-to standards represent the largest reductions in 
air emissions ever agreed to by individual companies in 
Illinois under any context, whether through an enforcement 
action or through regulation. The combination of the Illinois 
mercury rule, CAIR, and the MPS and CPS will have enormous 
positive impacts on reducing mercury, SOx and 
NOx emissions far beyond the levels that were 
required under the Federal CAMR and CAIR alone, and I have 
additional details of those figures in my written testimony.
    Whereas the Federal CAMR focuses solely on mercury 
emissions and CAIR concentrates on SO2 and 
NOx, Illinois has taken a combined approach that 
exceeds the goals in the context of a single regulatory 
framework accommodating engineering and construction issues and 
outage schedules, which are very, very important, as well as 
financing issues which have become even more important 
recently.
    When the United States District Court of Appeals vacated 
CAMR, our Illinois mercury rule was already in effect, and 
therefore the vacator had minimal impact on our Illinois rule, 
as you heard from the gentleman in the previous panel. It did 
cause us to do some revisions to our particular rule with 
respect to monitoring provisions we had relied on CAMR for, but 
otherwise our rule is intact.
    We were relying on CAIR phase one as part of our 8-hour 
ozone and annual PM2.5 attainment plans in annual 
fine particulate matter non-attainment areas. We have improved 
to a very significant degree even without these expected 
reductions. As a result, all but one monitor is in attainment 
for these standards, which we are very glad of.
    Despite the improvement in air quality, we would have much 
more significant problems in demonstrating attainment in our 
State implementation plan, as was discussed earlier, if CAIR 
phase one or something that looks very much like it, were not 
reinstated.
    As was suggested during the first panel, there is concern 
that power plants may delay or cancel some controls that were 
being installed to comply with CAIR phase one due to the loss 
of value in the SO2 and NOx allowances. 
And as you have heard, the market value of these allowances is 
very uncertain.
    We think that the vacator of CAMR and CAIR emphasizes the 
high risk associated with moving forward without legislation 
and moving forward only with Federal regulations subject to 
widespread opposition and controversy. Regulations will almost 
certainly be challenged in courts, potentially resulting in 
further delay of a vital strategy for the States to achieve 
attainment of Federal air quality standards.
    Section 126 petitions will surely also be filed by States 
who believe their neighbors in upwind States could do more to 
address non-attainment, even if the complaining States' air 
quality issues are largely as a result of emissions from its 
own sources. And Mr. Korleski and I have been working with our 
colleagues in other Midwestern and in the Northeastern States 
on an approach, but it is a very difficult one to try to work 
on together.
    As a result of our knowledge and experience gained through 
our efforts in Illinois, we support a comprehensive national 
strategy for reducing emissions of multiple pollutants from 
electric generating units. A comprehensive integrated approach 
benefits both regulators and the regulated community, in our 
opinion.
    Multi-pollutant approaches should, where practicable, 
address all significant emissions from electric generating 
units and supplement, not replace, the existing Clean Air Act 
programs such as New Source Review and MACT standards and 
Regional Haze. And we agree with you, Senator Carper, that 
trading makes a lot of sense with respect to nitrogen oxide and 
sulfur dioxide, but not with the neurotoxin mercury. We agree 
with that approach very much.
    We look forward to working with you, and again commend you 
and the other Senators who have--I have testified in front of 
you before and I really appreciate the continued interest that 
you have and the sentiment that you raised, Senator Alexander, 
that this not get lost in the other very, very important 
legislation that is coming through the Senate right now.
    Thank you for having me here today.
    [The prepared statement of Mr. Scott follows:]
    
    
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    Senator Carper. Thank you, Mr. Scott. We are going to do 
our best to make sure it does not get lost. And thank you for 
the good work you are doing in Illinois.
    Mr. Scott. Thank you.
    Senator Carper. Mr. Korleski, from the Buckeye State, Ohio.

   STATEMENT OF CHRIS KORLESKI, DIRECTOR, OHIO ENVIRONMENTAL 
                       PROTECTION AGENCY

    Mr. Korleski. Good morning. My name is Chris Korleski, and 
I am the Director of the Ohio Environmental Protection Agency.
    Chairman Carper, thank you so much for having me here, 
Ranking Member Vitter, who has had to leave, my own Senator 
Voinovich--it is always a pleasure to be here and be working 
with you on a project--and Senator Alexander, it is nice to 
work with you as well. I thank you all for the opportunity to 
meet with you again to come and discuss the CAIR issue.
    As we all know, the Clean Air Act requires States to 
develop approvable State implementation plans, SIPs, which set 
forth the emission reduction measures that States will 
implement in order to achieve attainment with the air 
standards. Stated simply, the initial CAIR rule served, and 
thankfully continues to serve, as an integral component of 
Ohio's SIP to achieve necessary reductions in both 
NOx and sulfur dioxide from power plants.
    Now, based on U.S. EPA's projected emission reductions for 
Ohio, the initial CAIR rule was anticipated to reduce 
NOx from power plants in Ohio from about 355,000 
tons a year in 2003 to 93,000 tons a year by 2009, and 83,000 
tons per year by 2015. Similarly large decreases for 
SO2 emissions were projected.
    It is critical to remind ourselves that a State's 
obligation to timely achieve the standards for ozone and 
PM2.5 remain firmly in place despite whatever might 
happen with CAIR. For example, Ohio was required to achieve 
compliance with the old ozone standard, meaning 84 parts per 
billion, in marginal non-attainment areas by June 2009, and in 
moderate non-attainment areas by June 2010.
    I am happy to tell you that Ohio has attained the old ozone 
standard in all but one of our non-attainment areas. However, 
our delight over this significant progress must be short-lived 
because new, more stringent standards for ozone, that is 75 
parts per billion, are now in place. Indeed, under the new more 
stringent ozone standard, we expect some of our urban areas to 
be designated non-attainment in 2010, including some areas that 
only just recently achieved timely compliance with the old 
standard.
    All of this means that Ohio needs the reductions achieved 
by CAIR to not only maintain compliance with the old standards, 
but to help us achieve the new standards as well.
    Now, I should emphasize that a number of power plants in 
Ohio have installed NOx controls and SO2 
scrubbers on their largest newer units in anticipation of the 
2009 compliance deadline under the first phase of CAIR. 
However, we know that this first phase of controls will not be 
sufficient for Ohio to meet the revised ozone and 
PM2.5 standards. But while we know that some form of 
enhanced CAIR is unquestionably needed to help States like Ohio 
meet their attainment targets, we don't know what the final 
version of CAIR will look like.
    I can tell you, as Director Scott has indicated, that 
several Midwestern States, including Ohio, have been having 
discussions with the Northeastern States in an attempt to try 
and develop joint recommendations to U.S. EPA for a CAIR 
replacement rule. Although these discussions have not 
concluded, I believe there is recognition by Midwestern and 
Northeastern States that additional controls on power plants 
beyond the initial version of CAIR will be necessary to achieve 
the revised air quality standards for ozone and 
PM2.5. The issue of contention is likely to be the 
degree to which power plant emissions can reasonably be 
expected to be lowered.
    Further, Ohio believes firmly that when revising CAIR, U.S. 
EPA must recognize that power plant emissions are not the main 
contributor to ozone non-attainment in urban areas. Rather, it 
is primarily the impact of transportation-related emissions 
that continues to hamper Midwestern and Northeastern States 
from achieving the ozone standard.
    Additionally, U.S. EPA must carefully consider what level 
of impact from one State on another's non-attainment should be 
deemed unacceptable; 1 percent of the problem; 4 percent of the 
problem; as well as the issue of the proper remedy to be 
applied when the threshold is exceeded.
    Even more importantly, Ohio continues to believe that U.S. 
EPA must when replacing CAIR squarely address the issue of 
emission trading. However, given the language of the court's 
decision, it appears that without additional legislative 
authority, a comprehensive uniform region-wide trading program 
cannot be developed. And to put it very simply, we know such a 
program works. As other people have pointed out, the Acid Rain 
Program is an excellent example where trading has produced 
significant additional emission reductions for SO2.
    As non-attainment with air quality standards threatens both 
public health and economic development, I would be concerned by 
a revised CAIR that does not include a regional trading plan. 
In our view, since there is recognition that a level of control 
beyond CAIR is needed, it becomes imperative that a trading 
program be enacted.
    In short, while we don't believe that there will ultimately 
be any large uncontrolled power plants in Ohio, we also believe 
that the smaller plants, those that are the least effective or 
least cost-effective to control, will best be able to obtain 
emission reductions through the application of a trading 
program.
    As noted above, it will be difficult, to say the least, for 
U.S. EPA to include a regional trading plan, given the court's 
July, 2008 decision and the language of the Act. Therefore, let 
me again respectfully suggest the solution.
    As we know, the heart of the court's concern with the 
initial version of CAIR derived from the court's interpretation 
of a single section of the Clean Air Act. In interpreting that 
section, the court concluded that trading was not appropriate.
    I again respectfully suggest to this subcommittee that 
Congress address the loss of the significant flexibility 
embedded in the initial version of CAIR by a surgical laser-
like amendment to section 110. Such an amendment would allow 
U.S. EPA to successfully promulgate a revised CAIR such that 
certain and significant emission reductions would be achieved, 
while at the same time, the flexibility needed in order to 
obtain significant reductions would be preserved.
    Indeed, Ohio will again take the liberty of respectfully 
proposing a new section 110(a)(2)(E), set forth below, which I 
will not read, which would provide the authority for a regional 
trading approach to serve as a starting point for consideration 
and discussion.
    In conclusion, Ohio respectfully requests that Congress 
provide clear authority to U.S. EPA to promulgate a CAIR rule 
which incorporates regional emission trading. The previous 
multi-State rule promulgations by U.S. EPA have included 
trading, resulted in significant emission reductions, and most 
importantly, were successful in improving air quality.
    I thank you very much.
    [The prepared statement of Mr. Korleski follows:]
    
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    Senator Carper. Thank you, Mr. Korleski, very much.
    Mr. Schneider. All ready for this presentation? Got some 
visual aids here? That is good.

STATEMENT OF CONRAD G. SCHNEIDER, ADVOCACY DIRECTOR, CLEAN AIR 
                           TASK FORCE

    Mr. Schneider. Thank you, Senators. Senator Carper, Senator 
Alexander, and I am sorry that Senator Voinovich had to leave. 
Thank you for the opportunity to address you today.
    Mr. Chairman, I want to thank you personally for the 
leadership and commitment that you have shown, the persistence 
that you have shown on this issue. I recognize Senator 
Voinovich, who also has persevered through this, and Senator 
Alexander.
    The three of you who were here just moments ago I think of 
as the A-Team in terms of if this problem is going to get 
solved, it is going to be the three of you that take the 
leadership role.
    Senator Carper. We have been called a lot of things. That 
is actually one of the nicer things, Lamar. We have the L.A. 
team and the T.A. team.
    [Laughter.]
    Mr. Schneider. I represent the Clean Air Task Force, which 
is a national nonprofit environmental advocacy organization. 
And our mission, in fact our founding mission, was to clean up 
power plants. Today's hearing revisits the status of emission 
controls 1 year after the D.C. Circuit struck down the Clean 
Air Interstate and Clean Air Mercury Rules. And I want to 
commend EPA for its statement here that it intends to follow 
the requirements of the Clean Air Act and issue stringent power 
plant regulations to replace those rules.
    There is no question that EPA should do that, including 
regulations on carbon dioxide consistent with its statutory 
duty as expressed by the Supreme Court in Massachusetts v. EPA. 
But we know that just as the Bush CAIR and CAMR rules were 
challenged and struck down, any new rules may founder on the 
shoals of court challenges and delays. And so to guarantee the 
certainty that public health and the environment demand and 
that industry craves, we believe that Congress should act now 
to solve this problem.
    In preparing for my testimony today, I really had a sense 
of deja vu all over again. I know that this date marks about 
the 1-year anniversary of the court cases, but it also is about 
the eighth anniversary of my first testimony before this 
committee on this very issue. And at that time in support of 
multi-pollutant legislation, I testified that power plants are 
the biggest contributor to the single largest environmental 
health risk that we face. They cause over 30,000 preventable 
premature deaths each year due to inhalation from particulate 
matter that that pollution creates.
    In addition, that pollution causes tens of thousands of 
respiratory and cardiovascular emergency room visits and 
hospital admissions; contributes to unhealthy levels of ozone 
smog that triggers many more asthma attacks; damages forests, 
lakes, bays and crops due to acid rain; contaminates our 
wildlife with mercury; and shrouds our national parks in a veil 
of haze--I would put up Great Smoky--a veil of haze 
unnecessarily; and of course last, contributes significantly to 
climate change. My written testimony documents these effects in 
detail.
    After 8 years from my first testimony here, we are back 
where we started, with nothing except the continued death, 
disease and damage caused by these plants. In that time, 
according to EPA's own analysis, approximately 240,000 
Americans have died unnecessarily due to this pollution. Let me 
say that again. In the 8 years since I testified here, 30, 60, 
90, 120, 150, 180, 210, 240,000 Americans have died 
unnecessarily due to this pollution. And when we realize that 
today technology exists, as it did then, that can reduce this 
pollution by 90 percent or more, we have to conclude that we 
all share a measure of responsibility.
    It is high time for all power plants in this country to be 
well controlled or shut down to make way for cleaner energy 
sources.
    Consistent with the emission controls technology that are 
available today, we believe the appropriate level of emission 
reduction would include a SOx, a sulfur dioxide cap 
of 2 million tons per year; a nitrogen oxide emissions cap of 
no more than 1.6 million tons per year, but subject to the 
point that the gentlemen from the States made, which is to 
bring their States into attainment, and I know that there are 
studies ongoing right now to pinpoint that number more 
specifically.
    With respect to mercury, we strongly support allowing EPA 
to finish its rulemaking on MACT for all coal-and oil-fired 
power plant hazardous air pollutants, but we would support that 
Congress backstop that process by requiring a 95 percent plant 
by plant mercury emission reduction at all currently existing 
coal-fired plant if that rule is not in place by 2012. These 
caps should supplement--not replace--existing Clean Air Act 
authorities.
    We would oppose the so-called technical fix which would 
merely give EPA the authority to allow emissions trading in the 
CAIR replacement rule, without at the same time setting 
specific limits. The reductions in CAIR were too little too 
late, and I would note that it sounds like the old war between 
the States, between the Northeast, Midwest and Southeast, is 
largely over. Today, States in each of those regions agree that 
we need more than CAIR to meet attainment.
    Senator Carper, your bill, the Clean Air Power Act, last 
year EPA did an analysis of the bill vintage 2005 that said its 
benefits would be $160 billion a year in 2020, and only at the 
cost of $9.5 billion at the same year. That means the benefits 
of your bill would be roughly 15 to 1.
    We are also aware that this debate takes place in the 
context of climate and energy legislation that the full 
committee is taking up right now and the full Senate is 
scheduled to take up later this year. And we commend the House 
of Representatives for its action in passing a climate bill, 
and we support an economy-wide cap-and-trade approach, and will 
work to strengthen it as it moves forward here.
    But we also know that addressing the climate bill, or 
passing the climate bill, will not remedy the SOx, 
NOx and mercury emissions; only flue gas 
desulferization scrubbers, only selective catalytic reduction, 
only activated carbon injection for mercury and other measures 
can do this.
    And if under a climate bill existing coal plants are to be 
retrofitted to control their CO2 emissions, we are 
being told that they must virtually eliminate their sulfur, 
nitrogen and mercury emissions to allow those post-combustion 
CO2 controls to function properly. So we support 
this as part of a climate bill or separately, because it needs 
to happen.
    And I would just note one other thing, and here is an idea. 
One of the chief criticisms of the Waxman-Markey bill is that 
it gives away carbon dioxide allowances to the power sector for 
free. And although that issue is a bit more complicated than 
the one I just stated, Clean Air Task Force believes that any 
giveaway of carbon allowances should be conditioned on plants 
meeting the best available technology and the maximum available 
control technology for hazardous air pollutants.
    Indeed, adding that provision to the Waxman-Markey climate 
bill would only add a small increment to its cost, while 
multiplying many times its calculable benefits. But regardless 
of whether it is accomplished through a climate bill or through 
separate legislation, Congress must commit to finishing this 
job. It is not too much to ask to save 30,000 lives a year, 
clear our national parks, restore the health of our forest 
ecosystems, cut ozone smog, and virtually eliminate the power 
sector's contribution to the mercury contamination in fish.
    We submit the costs of the bill is a small price to pay and 
many years overdue.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Schneider follows:]
    
    
   [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 
    
    
    Senator Carper. Thank you very, very much for that 
statement.
    We have a vote underway. I have a few minutes to get to the 
floor to vote. I will be right back. So this hearing is not 
adjourned, but in recess until I get back. I will be back 
shortly.
    Thank you very much.
    [Recess.]
    Senator Carper. Thank you for your patience. We are voting 
on one of our appropriations bills, trying to get those moving 
along, but I think we will have time to finish. No more votes 
before we finish, so I thank you for that.
    This is a question I would ask of the entire panel, and 
that is, it sounds like all of you support some sort of 
legislative action to address sulfur dioxide and nitrogen oxide 
emissions. Is that correct? Every head has nodded yes. OK.
    Some of you support only a technical fix. And let me just 
ask for those of you who feel that way, why wouldn't you want 
more certainty with targets and timetables if you think 
technical fix is better? Why not more certainty with targets 
and timetables? And maybe you don't share this concern, but 
wouldn't the litigation continue without providing as much 
direction as possible?
    Anyone, please.
    Mr. Korleski.
    Mr. Korleski. Senator, if I may, I am one who does support, 
I think I used the phrase surgical and laser-like fix.
    Senator Carper. I remember you saying that.
    Mr. Korleski. I know some of the other panelists disagree 
and would seek a more comprehensive approach. Very frankly, my 
view is that, and I think we have seen this over the last 
number of years, the more comprehensive, the larger it is, the 
more complex it is, it will require agreement by a larger 
number of parties, many of whom I think at the end of the day 
will not come to agreement. And my fear is, just to put it in 
the most candid terms, it would be gridlock to try to get 
there.
    So my recommendation has been, again I think sitting at 
this panel I think I heard, as you did, everyone say trading, 
make trading OK. Some people said, OK, that is a small part of 
it. Someone like me said that is a big part of it. I didn't 
hear anybody say it was a bad idea. That is something that 
everyone could agree upon and therefore something that could 
hopefully and presumably be accomplished, I don't even want to 
say presumably, hopefully be accomplished in legislation.
    Once you get beyond that, I think all bets are off.
    Senator Carper. OK. All right. Thanks.
    For panel members who may have a different view, just 
without being argumentative, but just a different view on this 
point.
    Mr. LaBauve.
    Mr. LaBauve. Thank you, Senator.
    From our view, Senator, I think we do all support the need 
for legislation and the need to support additional trading. 
From our perspective, however, I think you can see what was in 
the rule and what the court said of the rule, and I think it 
will not provide the type of certainty, the type of 
comprehensive solution that we all need on this particular type 
of issue.
    Even as we look at going forward, if we were to get at 
technical fix, there is no guarantee, as the court found, that 
all the areas that are currently non-attainment under the old 
standard would necessarily be brought back into attainment 
under that standard, since there have been new standards 
passed, as well as additional elements that EPA has to look at 
under the hazardous air pollutant requirements and the MACT 
requirements.
    We would like to see a more comprehensive fix to the whole 
solution to give us the type of certainty so that we can move 
forward with our planning.
    Senator Carper. OK.
    Mr. Corneli.
    Mr. Corneli. Yes, and we tend to agree with FPL on that 
point. But with respect to the target----
    Senator Carper. You tend to agree with whom?
    Mr. Corneli. With what FPL just said.
    Senator Carper. OK.
    Mr. Corneli. Part of the target or part of the objective of 
legislation should be to remove as much of the litigation risk 
as possible. And you know, the difference between the Michigan 
decision and the one a year ago shows that stuff can pop up 
that you weren't aware of yet. So we think there are, as I 
mentioned in my testimony, several areas of legal fixes that 
are needed.
    In addition, we would support the target and timetable of 
the introduction of a reducing cap over time. And I think if 
that is discussed broadly enough, very few people would oppose 
it because from the environmental side, you get more 
environmental benefits.
    From the business side, you get better economic certainty 
that there will be a continued price signal to support the 
validity of the investments we are making and the ability to 
recover them, especially with a reasonable approach to 
allocations, which help assure there is a positive incentive to 
make those investments, because you can then monetize some of 
the emission allowances you have allocated.
    And I think on that point, while several of us talked about 
different aspects of that, from what I have heard here and from 
what I have seen in related debates in the climate change area, 
I think there is room for consensus for building agreement 
around how to have a reasonable and moderate allocation 
approach as well.
    Senator Carper. Good. Thank you. All right.
    Mr. Schneider, I have a question. My next question is for 
you, if you really want to respond to this.
    Mr. Schneider. Please, Senator.
    Senator Carper. OK. Next question, if we look at the 
court's decision on the CAIR case, let me just ask, do you 
believe that EPA can rewrite rule on their own that continues 
the Acid Rain Program for sulfur dioxide? And do you think they 
could write a rule that allows for interstate cap-and-trade for 
sulfur dioxide and nitrogen oxide?
    Mr. Schneider. Senator, I think it would be very difficult. 
And I think it would be vulnerable to court challenge. I was 
heartened to hear Assistant Administrator McCarthy today say 
that she thinks she can create a hybrid approach, and I would 
be very interested in listening to what her OGC lawyers say 
about that. That was a heartening thing to hear.
    Our reading of the case is it is going to be very difficult 
to thread that needle. And you know, that is very different. 
The litigation posture, that is very different compared to the 
settled precedent in the MACT area, where we think there is a 
pretty clear road path for EPA to move forward. And we have 
differentiated that in our testimony to sort of say maybe that 
could go forward and maybe Congress helpfully could set a 
backstop in case that is not in place. But on the CAIR side, 
frankly it is a mine field.
    Senator Carper. All right. Just a follow up; if the Acid 
Rain Program cannot be extended, what happens to the banked 
allowances from previous years?
    Mr. Schneider. Well, I mean, the conditionalism on that is 
that the market collapses. And one fear is that you see people 
dumping allowances, which basically means that it is cheaper 
for them to emit and not run scrubbers. Right? So that would be 
a concern.
    The fact of the matter is there are some limits on that 
with respect to people's individual Federal and State permits 
and other State requirements. So I can't here tell you that, 
you know, we are going to from 1 day to the next see this spike 
in emissions as a result of that. But certainly, it is not a 
helpful thing. What we are trying to do is get an emissions 
trajectory that goes down to protect public health and the 
environment. So that would not be a good outcome.
    That is another reason is makes sense, and this sort of 
goes back to your previous question that the other gentleman 
addressed, why it makes sense to move beyond just a technical 
fix or surgical fix and to set specific emission rate limits 
and so forth on these pollutants so there is certainty and 
especially not the litigation risk that would be faced 
otherwise, and the risk of what you are hinting at in your 
question.
    Senator Carper. All right. Thanks.
    Let me ask my next question, this is really for the broad 
panel, but especially for Mr. Scott, if I could.
    In the past, I have introduced legislation with others that 
has regulated mercury, including Senator Alexander, who has 
been a champion on this, but we introduced legislation that 
regulated mercury at the stack, calling for 90 percent 
reductions.
    According to the GAO study, which we have heard from 
earlier this morning, it looks like most plants are easily able 
to get to 90 percent reductions. Let me just ask somebody who 
has dealt with this issue for some time, do you think that 90 
percent is realistic? Is it too high? Is it too low?
    Mr. Scott. We think it is very realistic, Senator. It is 
interesting. When we were negotiating these agreements early 
on, we started with a strong mercury rule that called for 90 
percent, and that is actually what led to all of the 
discussions about a multi-pollutant solution. And we were told 
at that time by most of the companies that they didn't think 
that it was achievable. But our findings from the testing and 
the actual installations that have been done would indicate 
that it is quite doable, and that it is a realistic number.
    So we think that that 90 percent figure is not only 
realistic, but it is showing up in the testing that has been 
done, and even at less sorbent injection in an activated carbon 
injection system than even we had anticipated being necessary 
to accomplish that 90 percent. So we have been very encouraged 
by the results that we have seen.
    Senator Carper. OK.
    Anybody else want to be heard on this issue?
    Mr. Corneli and then Mr. Schneider.
    Mr. Corneli. Yes, we have cooperated with the GAO on some 
of their work. We have done sorbent injection control initially 
ourselves and have plans to do it on our entire fleet of coal 
plants. And we think it works. We agree basically with the GAO 
perspective. We think it works. We think it is economical, and 
at least on our plants and coal types. And we think it is 
something that can definitely be done under the MACT approach 
and should be done under the MACT approach.
    I would say that at a somewhat more technical level, we 
think that other hazardous air pollutants that come out of 
power plants could interfere with the efficient cap-and-trade 
and removal technologies for SO2 and NOx. 
So we think that in addition to a MACT approach for mercury, 
power plants should be removed from section 112 with respect to 
other HAPs to avoid that kind of interference between MACT for 
other things that are not quite such serious pollutants.
    Senator Carper. OK. Thank you.
    Mr. Schneider, last word on this issue.
    Mr. Schneider. Sure. I do want to respond to that very 
point because I know that has been a subject of some 
discussions. And we would vigorously oppose the idea of 
removing the other hazardous air pollutants from section 112. 
In their own right, dioxins, furans, acid gases, and heavy 
metals, they are serious environmental threats, and they should 
go through the MACT process. And I think we will have a better 
outcome both in environment and in terms of ultimate control on 
these plants if they are subject to that. So we would oppose 
that. Thanks.
    Senator Carper. All right. Thank you.
    Mr. Corneli, can you talk with us little bit about what NRG 
is doing to mitigate mercury at your coal plants? You talked a 
little bit about this, but if you don't mind. You folks have a 
big plant down in southeastern Sussex County in Delaware. But 
what kind of reductions are you seeing in your plants? Again, 
you talked about this a little bit, but could you talk about 
the benefit of certainty for pollution controls, not just what 
the country needs, but also for your company?
    Mr. Corneli. Well, two things. First, on the sorbent 
injection for mercury, the 90 percent reduction levels seem to 
be attainable. We have begun to use that at our plant in 
Delaware and are seeing good results. I don't have the latest 
details of the actual results there, but I would be glad to get 
those to you.
    Senator Carper. All right. Thank you.
    Mr. Corneli. In terms of the----
    Senator Carper. You have a number of plants there, a couple 
of smaller ones and larger units, too.
    Mr. Corneli. Yes, in New York as well, and also installed 
sorbent injection. The question of certainty I think is 
particularly important for us because we are a merchant power 
plant. We don't have rate base. We don't have regulated rates 
that allow us to turn around and recover our costs from retail 
customers. That tends to be good news for customers because 
they don't have to accept the costs that a regulated utility 
would just pass through, but it makes cost recovery challenging 
for us.
    So one of the things that we need in certainty really is to 
know what the rules are. And the second thing goes back to the 
allocation provisions, is that we need to have a reasonable way 
of being sure that we can recovery our costs through the cap-
and-trade system or mitigate our costs by selling allowances 
when we make the emission reductions. And that relates both to 
the existing bank from reductions we have made in the past that 
we would like to be able to use that for compliance, although 
we do think that there needs to be this two for one or 2.85 for 
one discount in the future.
    And it also goes to features of what you can do or what the 
EPA can do in making a new rule and a new law. And that is to 
continue that same sort of incentive, positive incentive that 
if you make emission reductions, if you invest billions of 
dollars in emission reductions, you will have some way to 
recover that or a portion of those costs by actually selling 
allowances that you got for free, without creating windfalls or 
without creating too much of a good thing.
    And the last piece of certainty for us really relates to 
the thing you have already talked about, Senator, and with your 
colleagues, is litigation risk. If you do invest billions of 
dollars or hundreds of millions of dollars in pollution control 
equipment and you are relying on selling allowances at a market 
price to recoup some of that expense, and a court case comes 
along and vacates or remands the rule, as other witnesses have 
said, that can lead the market to collapse.
    And all of a sudden the way you thought you were going to 
make back money for your investors in terms of paying for those 
hundreds of millions of dollars investment evaporates. And that 
is something that we think is critically urgent to avoid, to 
having a market-oriented powerful incentive for the private 
sector to really jump on board, not only with the controls, but 
actually with the legislation itself.
    So we think those features will be very, very helpful in 
moving this forward politically, legally and commercially.
    Senator Carper. Good.
    I am sitting here today remembering a hearing that goes 
back maybe 5 or 6 years ago, and the hearing focused on mercury 
emissions and if we could find a way to cost-effectively reduce 
those emissions by 80 percent over a reasonable period of time. 
A number of people sat at this table and said, no way; that is 
just not, we are not going to do that anytime soon. I am just 
struck by how far we have come, and really struck by how cost-
effective this can be.
    Could someone just take a minute and explain to me how does 
sorbent injection work? Can somebody just explain it to me, 
very briefly? Anyone want to take a shot at that, so even a 
Senator might understand it?
    Mr. Corneli. Well, I will have to explain it extremely 
simply because that is the extent of my understanding, Senator. 
But basically, a sorbent is something that chemically attracts 
or bonds with certain other chemicals. And activated carbon, 
for example, is a sorbent that will attract and bond with 
things. That is why people filter whiskey through charcoal. It 
is a good sorbent.
    And the activated carbon injection blows ground up carbon 
that has been treated to make it especially sorbent into the 
exhaust stream of a coal plant before it gets filtered out 
through part of the filtration system that captures fly ash and 
particulates and other things. And in that process, the 
vaporized mercury that is in the exhaust stream gets bonded 
onto the little carbon particles and filtered out. You know, 
that is the extent of my knowledge about it.
    Senator Carper. Well, good. Thank you. I think I understood 
that.
    Another question, if I could, and maybe we will just direct 
this one to Mr. Scott.
    In your testimony, I think you mentioned that Illinois has 
implemented multi-pollutant regulations for your power plants, 
including regulations for mercury. Have you seen a dramatic 
increase in your customers' electric bills? Have you seen any 
increase in your customers' electric bills as a result? And do 
you believe that the multi-pollutant approach costs more money, 
or does it actually save money in the end?
    Mr. Scott. I think it would actually save money in the end, 
under the assumption that all of these different pollutants are 
going to be regulated at some point. The reason I say that is 
because we were able to sit down with the companies 
individually, which is obviously something that would be very 
difficult to do on a Federal level, but for us, we were able to 
do it, to actually sit down and go plant by plant and make sure 
that we were accommodating the companies in terms of things 
like outages and when they had to install equipment so that 
they were doing it at the most cost-effective time for them, 
rather than us coming along with multiple regulations and 
slapping them on at different times, them having to comply with 
them all, which may include moving equipment that you have 
installed once and reinstalling it a second time.
    So I believe doing this comprehensively is actually more 
cost-effective for the companies. The larger expense in all of 
this is not the mercury, it is the equipment that deals with 
NOx and SOx. It is things like scrubbers, 
which are, you know, the very expensive equipment that is 
there. The mercury injection alone, we are talking about in the 
millions of dollars to install, and when you spread that out 
over the number of kilowatt hours that are there, you are 
talking about a really, really small expense as compared to the 
billions that we are talking about, we think that the controls 
that are on for NOx and SOx are somewhere 
in the neighborhood of, for these three companies, somewhere in 
the neighborhood of $5 billion.
    So obviously, even as you spread that out, that becomes 
something that does get seen in the rates, as opposed to the 
mercury, which is a very, very small cost. But it is difficult 
to say how much of this is, Illinois is at an interesting 
juncture with re-regulating the utility companies. That period 
ended about 3 years ago, and we have gone through a lot of new 
regulations now, so it is difficult to attribute any particular 
cost to any particular stream. But just from doing some 
analyses of how much it cost, you know, we can come to the 
conclusion obviously it is going to cost something to do that. 
But again, we think it is more cost-effective than doing these 
regulations piecemeal.
    Senator Carper. OK. Thank you.
    And if I could, for Mr. LaBauve, a question. Your company 
has I think had difficulties with the allocation scheme for 
CAIR. Is that true?
    Mr. LaBauve. Yes, that is correct, Senator.
    Senator Carper. Why is that?
    Mr. LaBauve. Under the proposed rule that came out from EPA 
originally, they allocated allowances to units across the 
country in the initial allocation. And when the final rule was 
actually developed, they applied what was called a fuel 
adjustment factor. And under that fuel adjustment factor, they 
made an adjustment to the allocation such that if you generate 
electricity from oil or from gas, you got only 60 percent or 40 
percent of the previously allocated allowances that you 
formerly were going to get. And so that remainder that you 
didn't get was actually shifted and moved over to those who 
generated electricity from coal.
    It basically, in EPA's words, was their effort to try to 
adjust on an equity basis, shift some of the allowance value 
over to those coal units because they felt like they were going 
to have a larger percentage of reduction responsibilities in 
the long run.
    We think, one, that was not consistent with the Clean Air 
Act under section 110, which was supported by the court because 
they recognized that 110 has no element of equity adjustment in 
it. It is really just a matter of getting the areas into 
attainment as required by the Act.
    And second, the court said in terms of doing an equity 
adjustment, this was not within your authority, EPA, to do so. 
From our vantage point, we have always felt like from our 
perspective as a company, we have invested in clean generation. 
Our customers have paid for that clean generation. And the 
allowance values, whatever that may be that we were going to 
get, was going to be their way of getting some value of 
allowances to compensate them for the technology that they had 
installed in those units.
    We didn't feel like it was appropriate for those allowances 
to be shifted over to the coal generators.
    Senator Carper. All right. Thank you.
    A follow up maybe, if I could, for Mr. Corneli, and maybe 
for you again, Mr. LaBauve. Let me go over to Mr. Corneli 
first.
    In the Waxman-Markey climate legislation, I think the 
allocation for the cap-and-trade program for greenhouse gases 
combines an auction with free allowances. That is correct, 
isn't it?
    Mr. Corneli. Yes.
    Senator Carper. OK. The free allocations are split between 
historical emissions and electrical output to the local 
electric distributors. Is that correct? OK.
    Mr. Corneli. The allocations for the regulated distribution 
company is split that way, although there is additional just 
for certain fuel emitters, fuel-based emitters.
    Senator Carper. OK. And here is where I am leading. What 
are your thoughts about this particular allocation process? And 
could we do something similar for other pollutants? And what 
about auctioning the allowances?
    Mr. Corneli. Well, that is a really good set of questions, 
and I will try to be precise and quick. First, I think one of 
the reasons that the Waxman-Markey bill has the allocation 
system for the power sector it does, which I would describe as 
one bucket for regulated distribution companies, which is every 
electric company that owns a meter on somebody's house and 
pushes electricity through it, whether it is a co-op, municipal 
utility, a restructured distribution company in a State like 
yours, or a vertically integrated utility in the South or the 
West.
    Every LDC gets some allocations, and specifically has to 
pass the value of that through to their customers. That is the 
first bucket.
    The second bucket is coal-based merchant power plants get 
some allowances, not 100 percent, but some to reflect the fact 
that they will typically not be able to pass through all of 
their costs into higher power prices, unlike gas or oil-fired 
power plants.
    And so I think the reason for that system is partly to 
recognize the significant concerns that Randy just expressed, 
that customers of companies that have invested in cleaner 
assets deserve some recognition for that based on an output 
kind of allocation, and customers who are subject to high 
compliance costs because they are served by heavier emitters 
deserve some protection from that.
    So the LDC allocation addresses both those issues through a 
mix. The emitter allocation, which goes just to the folks who 
cannot pass through costs and just to an estimate of how much 
they cannot pass through, is designed to buffer the impact on 
compliance costs for companies like ours so we can invest these 
billions of dollars in new technology without creating any 
windfalls for us.
    And I think the same basic concepts, maybe applied quite 
differently in the case of NOx and SO2, 
could certainly be applied. The equity issues that are 
important to low emitting fleets could be recognized through a 
partial output-based allocation. The cost recovery issues that 
are important to heavily fossil fleets could be addressed 
through an allocation that is adjusted for their expected 
compliance costs. And this package would avoid windfalls, would 
stimulate investment, and would address equity concerns.
    So we are confident that that same basic approach could be 
used, you know, with recognition that the States are involved 
with the NOx allocation; that this is a different 
piece. But we think something like that makes sense, and we 
could get beyond sort of the old input versus output fight and 
look at the results--equity investment, fairness that really 
matter--and try to figure out a way to solve those issues.
    Mr. LaBauve. Senator, I would concur with most of what 
Steve said. We support overall the Waxman-Markey bill and we 
support the allocation formulas that were included in the bill. 
I would say that early on in the debate, we were one of those 
companies that were advocating for 100 percent auction of 
allowances. We thought it was the appropriate methodology to 
follow.
    However, in the context of trying to get to a bill and 
trying to get something passed, we were working through USCAP. 
We were working through EEI. And eventually worked our way with 
other companies to come up with a compromise that would as 
quickly as possible maybe start with a free allocation of 
allowances that would then eventually transition to an auction. 
And in that initial free allocation, as Steve noted, there was 
this balance between those allowances that would be allocated 
based upon sales and those allowances that would be based upon 
emissions.
    At the end of the day, while we could all differ as to the 
details, at the end of the day we do support overall the 
Waxman-Markey approach. And I do think it is a precedent that 
could be used in the context of discussing a three-pollutant 
bill and how to handle the allocation allowances.
    Senator Carper. OK. Thank you.
    I think I am going to wrap it up here. Does anybody have 
something really burning that you feel like you need to get out 
on the floor? One last comment? I would yield to you.
    Mr. LaBauve. Senator, I would just like to say from the 
perspective of FPL Group we have been working with you for 
years on the three-pollutant bill issue. We appreciate your 
leadership on this. We are excited about the opportunity to 
work with you in the future as we move forward to try to give 
EPA the clear certainty that they need to move forward with 
their rule.
    Senator Carper. Thank you. And I appreciate very much your 
participation, and really what you said there at the end is 
that we have had this battle on input versus output, and 
whether to have auctions or not to have auctions. At the end of 
the day, I think we are going to get something done, and it is 
because of really the participation of everybody at this table 
and a lot of other folks as well, and the willingness to work 
hard, to use good science, but to also use good common sense, 
and to enable us to do some good things hopefully at a 
reasonable price for the folks who live in this country and on 
this planet.
    It has been a very good hearing, and I appreciate your 
willingness to stay as long as you have, and we look forward to 
continuing to work with you going forward.
    The hearing record I think will be left open for how long? 
Three years. No, just kidding.
    [Laughter.]
    Senator Carper. A while. A while, not too long. And if you 
do receive any other follow up questions from my colleagues, I 
would just ask that you respond to those promptly.
    And again, we appreciate very much your being with us 
today. Thank you all so much.
    And with that, this hearing is adjourned.
    [Whereupon, at 12:30 p.m. the subcommittee was adjourned.]
    [An additional statement submitted for the record follows:]

                  Statement of Hon. James M. Inhofe, 
                U.S. Senator from the State of Oklahoma

    I want to thank Subcommittee Chairman Carper and Ranking 
Member Vitter for calling this timely hearing to discuss the 
aftermath of the D.C. Circuit's decision to overturn EPA's 
Clean Air Interstate Rule and Clean Air Mercury rule. I welcome 
this opportunity to discuss the impacts of these cases and the 
tools needed to achieve greater reductions in criteria 
pollutants.
    Of course, I welcomed the opportunity 4 years ago when this 
committee debated, and ultimately failed to pass, the Clear 
Skies bill, which would have locked in a 70 percent reduction 
in emissions of mercury, nitrogen oxides, and sulfur dioxide 
for the next two decades. Instead, the last Administration was 
forced to get those reductions through regulation. I argued 
then that the regulatory path was uncertain and prone to 
litigation. Here's what I actually said, and what I predicted, 
4 years ago:
    ``CAIR is significantly more vulnerable to court challenges 
than Clear Skies would have been and will undoubtedly be held 
up, not unlike the Clinton administration's 1997 air quality 
standards. This latest round of litigation demonstrates the 
need for a strong national Clear Skies law more than ever.''
    So here we are in 2009, without the substantial health 
benefits of Clear Skies and with no CAIR and CAMR rules because 
of litigation. We are left with an EPA that some believe lacks 
legal authority to permit region-wide emissions trading. We are 
left with uncertainty for States developing State 
Implementation Plans, or SIPs, that relied on CAIR to comply 
with national ambient air quality standards. We are left with 
uncertainty on, among other things, mercury reductions, 
conformity, new source review, and its effects on reductions 
for the Regional Haze Rule, which may impact my State of 
Oklahoma. In the final analysis, all we have are court 
decisions, which lawyers can certainly argue about for a 
substantial fee--but they don't clean the air.
    Let's put it bluntly: we have a colossal mess on our hands, 
created in large part by litigation. Ironically enough, the 
outcome of the CAIR litigation was something no one wanted--not 
environmentalists, not the States, and not industry. Now we 
face an uncertain regulatory future, and more important, we 
could lose the health and environmental benefits that CAIR 
would have achieved. I would note that EPA estimates such 
benefits to be 25 times greater than their costs.
    For all involved, it's quite clear that the status quo is 
unacceptable. So what can we do to change it? Obviously, I 
would prefer a comprehensive legislative solution, such as that 
proposed in the Clear Skies bill, but that's not politically 
feasible now or in the near future. So I believe in the short 
run, it's imperative that we provide EPA with authority to 
implement CAIR, or at least something very much like CAIR.
    Why is such a course imperative? As you will hear today 
from several witnesses, without additional legislative 
authority, it's unclear whether, under section 110 of the Clean 
Air Act, EPA can implement a comprehensive, region-wide trading 
program. I would note that the alternatives to trading under 
the Clean Air Act are unpalatable.
    So to make things crystal clear, I intend to join my 
colleague Senator Voinovich, who has taken the lead in drafting 
legislation that would provide EPA with narrowly tailored 
authority to implement CAIR, or its replacement. This 
legislation will help remedy significant price erosion in the 
SO2 and NOx markets, and provide 
incentives for plants to install pollution control equipment. 
Many companies have delayed such projects because of 
uncertainty over the future value of SO2 and 
NOx allowances.
    A comprehensive legislative plan is needed, but that will 
take time. So in the meantime, let's lock in market certainty 
and clean air benefits for the next decade. As was true 4 years 
ago, Congress needs to act, or else uncertainty, confusion, and 
litigation will rule the day.

    [Additional material submitted for the record follows:]
    
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