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Air Board Adopts Indiana Mercury Emissions Rule

10.01.2007

By Larry Kane, Attorney, Bingham Greenebaum Doll LLP

On October 3, 2007, the Indiana Air Pollution Control Board adopted a rule to implement the cap-and-trade program established by the federal Clean Air Mercury Rule (CAMR) at 40 CFR Part 60, Subpart HHHH to achieve substantial reductions in mercury emissions from coal-fired electric generation units (EGUs) over the next decade or so. The cap-and-trade program for mercury emissions under CAMR closely tracks the cap-and-trade programs established for SO2 and NOx under the federal Clean Air Interstate Rule (CAIR) (which in turn are inspired by the cap-and-trading program created under the 1990 Amendments to the CAA and the Acid Rain rules).

The federal rules, at 40 CFR 60.24, create an annual mercury emission cap or “budget,” broken down into two phases, for all EGUs in each state so as to achieve the overall reductions in mercury reductions to be achieved nationally. The initial phase of reductions will apply for the period of 2010 through 2017 and reflects the reduction in mercury emissions projected to be achieved as corollary benefits of the first phase of SO2 and NOx emission reductions to occur under CAIR. The phase II cap under CAMR is to take effect in 2018 and represents approximately a 69% reduction from pre-CAMR emission levels. Individual states are not required to participate in the cap-and-trade program but are required to adopt rules which allocate no more than the state’s mercury emission budget under CAMR to EGUs within the state so as to comply with the state cap. States electing to participate in the federal cap-and-trade program may establish certain unique provisions for allocation of the annual mercury emission budget, such as additional types or greater amounts of set-asides of emission allowances than the new unit set-aside specified by federal CAMR, but a state’s trading rule must contain certain minimum elements of the federal trading program so as to be readily compatible with the programs of other participating states.

One unique allocation feature included in the Indiana CAMR is a clean coal technology set-aside that has been carved out of the new unit set-aside provided in the federal CAMR rule. In addition, an optional allocation method is provided for clean coal technology units once they have been in operation for a sufficient time to become “existing units” under the rule.

The Air Board’s adoption of the rule sets the stage for coal-fired electric generating facilities in Indiana to participate in the federal CAMR cap-and-trade program. The Indiana CAMR rule, to be codified as 326 IAC 24-4, will not be fully effective until (i) approved by the Indiana Attorney General and Governor under state rulemaking procedures and (ii) approved by U.S. EPA as consistent with federal CAMR. As pointed out in IDEM’s Rule Fact Sheet for the Indiana CAMR rule, EPA is developing a federal CAMR implementation rule to be implemented in states that do not timely adopt rules under federal CAMR. It is anticipated that the federal implementation rule will allow states that have adopted state CAMR rules which are not approved by EPA in time for making initial allocations in late 2008 to request partial approval of the state programs. The proposed approach will be to allow states receiving partial approval to operate under the federal implementation rule using the state allocation methodology pending full approval by EPA of the state program.

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