Clean Air Ruling’s Potential Affect on Utilities and IPPs Long SO2 and NOx Allowances

Implications:     Court’s decision vacating the Clean Air Interstate Rule (CAIR) potentially affects utilities or IPPs long the allowances as described in the section that follows.

Analysis:     CAIR was to go into affect in 2009 in the Eastern United States to reduce NOx year-round on top of the already-existing seasonal NOx SIP requirement for 5 months a year.  In addition, the Eastern United States was to reduce SO2 starting in 2010 by surrendering 2 emissions allowances for every 1 ton of SO2 emissions, compared to the current 1-to-1 surrender rate.  The SO2 surrender rate was to be 2.86-to-1 in 2015.               

    The Court’s July 11, 2008 decision vacated CAIR including the points highlighted in the previous paragraph.  As a result, utilities or IPPs that purchased allowances beyond what was allocated to them for free by the EPA for their own emissions requirements or for trading are now facing a potential impairment charge.               

    The 2009 NOx allowances prior to the Court ruling were trading for approximately $5,000 each.  They would be worthless if the year-round NOx requirement was not reinstated by some means.  The IPPs’ or utilities’ write-down would be the dollar value of the NOx allowances purchased and held that were no longer need to comply with the vacated CAIR.               

    A key date is August 25, 2008 which is the deadline for the EPA to appeal the decision to vacate CAIR.  Another thing to watch would be Congressional action to pass a bill for the President’s approval during the remaining days before January 1, 2009—the date the reduced NOx emissions levels were to start in the Eastern United States under CAIR.