News: CJ Exclusives

Cooper Worries About Bush Plan

Concern is that federal law overrides N.C.'s Clean Smokestacks Act

In his latest promotion of North Carolina’s Clean Smokestacks Act, Attorney General Roy Cooper last month objected to provisions of President Bush’s Clear Skies initiative, because of concerns that it would override provisions in the state law.

But an analysis of Cooper’s claims show that his worries are unwarranted or that they are based on a dubious legal foundation. Documents show that either the Smokestacks law would not be affected by Clear Skies, or that the Smokestack law’s implemented requirements might have been unconstitutional in the first place.

Among Cooper’s claims was that if the Clear Skies initiative passed, it would void a provision in the Smokestacks law in which North Carolina’s two investor-owned utility companies, Duke Energy and Progress Energy, turn over emissions “credits” to the state. Under the current federal Clean Air Act, utilities that fail to attain Environmental Protection Agency pollution standards in one state may purchase emissions credits from utilities in other states whose pollutant levels are below EPA limits. The system is called “cap and trade.”

Under the N.C. Clean Smokestacks law, the two utilities “voluntarily” agreed to give the credits they are expected to earn in the coming years to the state. The provision was included so Duke and Progress would not sell their credits to out-of-state utilities, such as the Tennessee Valley Authority, whose pollution would then drift back into North Carolina.

In a memo used to support a letter from Cooper to members of the U.S. Senate Committee on Environment and Public Works, N.C. Department of Justice lawyers feared that the Clear Skies initiative would curtail the utilities’ donation of their credits because of a provision that says no state “shall restrict or interfere with the transfer, sale, or purchase of allowances….”

But when environmentalists, state officials, and the utilities negotiated the Smokestacks bill in 2002, they realized even then that forcing Duke and Progress to give up their emissions credits to the state could violate either the Supremacy Clause or the Commerce Clause of the U.S. Constitution. On May 6, 2002, Elizabeth Ouzts of the North Carolina Public Interest Research Group, an environmentalist organization, wrote in an e-mail to James Gulick of the N.C. Department of Justice that “from our perspective, the clearest prohibition of selling credits to other states is the most desirable. However, such language may create Commerce Clause problems.”

The negotiating entities compromised on a position in which Duke and Progress would “voluntarily” enter a contractual agreement with the governor, and give their emissions credits to the state. The contract would be allegedly enforceable under the Smokestacks law. As the days of negotiation dwindled, legislative analyst George Givens wrote in a memorandum to all the parties that both Duke and Progress “have graciously offered to make a charitable donation to the state of any emissions allowances the utilities earn….”

“Because it is based on voluntary action by the utilities,” Givens wrote, “this resolution of the emissions allowances issue appears to raise no constitutional or other issues….”

But whether the utilities’ donation of emissions credits is genuinely voluntary is still in question.

In their memo, Department of Justice lawyers said the Clear Skies Act’s potential elimination of credit donating could supersede another of its provisions, which says that “nothing…shall preclude or deny the right of any State…to adopt or enforce any regulation…that is more stringent than a regulation” in the Clear Skies provision.

Cooper’s lawyers also argued that Duke and Progress in previous years purchased sulfur dioxide emissions credits from other utilities in order to comply with the Acid Rain program requirements. They said that Duke’s and Progress’ excessive sulfur dioxide emissions as a result of the cap and trade program was a “prominent cause of North Carolina’s persistent particulate [matter] and ozone pollution problems….”

“Despite these facilities’ compliance with their…limits [from purchasing emissions credits], they still emitted unacceptably high volumes of (sulfur dioxide),” the Justice Department lawyers wrote. “The answer to this problem was state action: the Clean Smokestacks Act.”

However, sulfur dioxide does not contribute to ozone.

“Some (sulfur dioxide) is converted to sulfate, a form of particulate matter,” said Joel Schwartz, a visiting fellow who studies environmental issues for the conservative American Enterprise Institute. “However, sulfate (particulate matter) has declined everywhere in the U.S., including North Carolina, since the credit trading program was started.”

Schwartz said that by the end of 2003, only two monitoring locations in all of North Carolina violated the standard for fine-particulate matter pollution, “and they violated by only a few percent.”

“(Fine particulate matter) dropped in 2004, so these last two locations are probably now in compliance,” Schwartz said.

N.C. Justice Department lawyers also bemoaned what they said were proposed changes in the Clear Skies provision to the Clean Air Act’s “Section 126” enforcement program. That provision currently allows states to petition the EPA to curb emissions from out-of-state sources. Under the Clear Skies provision, the Justice Department lawyers said, a state under Section 126 could seek relief from an outside state only if the cost of controls on the out-of-state sources category is lower than the costs on every other “principal” source category, such as vehicle emissions within the state that is affected.

Cooper’s lawyers also argued that the state may not be able to enforce its own, stricter emissions standards against pollution sources within its boundaries under Clear Skies. But no apparent provisions of the president’s initiative would hinder a state from such enforcement.

Finally, Justice lawyers argued that the Clear Skies provision would weaken New Source Review requirements currently in the Clean Air Act. The provision requires utilities, when conducting major repairs at their coal-fired power plants, to upgrade their emissions reductions equipment to the best technology available at the time.

But NSR has been a controversial provision of the Clean Air Act. The EPA, under former President Bill Clinton’s administration, in the late 1990s began retroactively reinterpreting the NSR rules for utilities’ power plant upgrades, which led to several lawsuits. Some utilities in the Midwest and the South reached settlements with the EPA, but most of the litigation is still unresolved.

The Clear Skies provision, advocates say, would simplify mandates for overall curbs on power plants’ emissions through the market-based “cap and trade” system. Under the current Clean Air Act, the Department of Justice and EPA would have to be almost 100 percent successful in their litigated enforcement actions in order to surpass what market solutions would accomplish under the Clear Skies provision — likely with many fewer lawsuits.

“New Source Review has made air pollution worse than it would otherwise be by making it more economical to keep old plants running as they are, rather than upgrading them or building new ones,” Schwartz said.

He said that while NSR is a tough enforcement tool, it also creates incentives that discourage air pollution control. On the other hand, cap-and-trade systems motivate utilities to pursue new and existing pollution control methods at the cheapest price.

“This encourages a search for new ways to control pollution,” Schwartz said.

Paul Chesser is associate editor of Carolina Journal. Contact him at [email protected].