^osr„
a"	^
£
<
5
V
*>
^ PRCfffc

b
T.
s
U.S. Environmental Protection Agency
Office of Inspector General
At a Glance
2005-P-00003
February 3, 2005
Why We Did This Review
Members of the Senate
Environment and Public
Works Committee requested
that we review EPA's
development of its proposed
rule for controlling mercury
emissions from coal-fired
electric utilities.
Background
Coal-fired electric utilities
represent the largest source of
airborne mercury emissions in
the United States. Once
airborne, mercury can be
deposited into water, where it
bio-accumulates in fish and
animals at the top of the food
chain. Human consumption of
fish is the primary method of
exposure to mercury, which
has been shown to cause
neurological and fetal
developmental problems.
On January 30, 2004, EPA
proposed rules for regulating
mercury emissions from coal-
fired steam generating electric
utility units. EPA proposed
two options for controlling
mercury emissions, one a
control technology standard
with emission limits and the
other a performance based
cap-and-trade approach.
For further information,
contact our Office of
Congressional and Public
Liaison at (202) 566-2391.
To view the full report,
click on the following link:
www.epa.gov/oig/reports/2005/
20050203-2005-P-00003. pdf
Catalyst for Improving the Environment
Additional Analyses of Mercury Emissions Needed
Before EPA Finalizes Rules for Coal-Fired Electric Utilities
What We Found
Evidence indicates that EPA senior management instructed EPA staff to develop a
Maximum Achievable Control Technology (MACT) standard for mercury that
would result in national emissions of 34 tons annually, instead of basing the
standard on an unbiased determination of what the top performing units were
achieving in practice. The 34-tons-per-year target was based on the amount of
mercury reductions expected to be achieved from implementation of nitrogen oxide
(NOx) and sulfur dioxide (S02) controls under a separately proposed, but related,
air rule. According to EPA officials, 34 tons represents the most realistic and
achievable standard for utilities. However, because the results of the MACT
standard were prescribed and prior estimates were lower than what was proposed,
the standard likely understates the average amount of mercury emissions reductions
achieved by the top performing 12 percent of utilities, the minimum level for a
MACT standard required by the Clean Air Act. Further, this MACT standard, as
proposed, does not provide a reasonable basis for determining whether the MACT
or cap-and-trade approach provides the better cost benefit.
The Agency's cap-and-trade proposal can be strengthened to better ensure that
anticipated emission reductions would be achieved. For example, utilities would
not need to install mercury-specific controls to achieve the interim cap, but could
meet the cap by implementing NOx and S02 controls associated with another
proposed trading program. Also, the proposal does not adequately address the
potential for hot spots. Further, provisions for units emitting small amounts of
mercury could be improved.
We also found that EPA's rule development process did not comply with certain
Agency and Executive Order requirements, including not fully analyzing the cost-
benefit of regulatory alternatives and not fully assessing the rule's impact on
children's health.
What We Recommend
We recommend that EPA re-analyze mercury emissions data collected for the top
performing 12 percent of units to develop a MACT floor. The Agency should also
conduct a revised cost-benefit analysis for the updated MACT that takes into
account the impact of mercury co-benefits achieved through the proposed Clean Air
Interstate Rule. The results of the cost-benefit review should be compared to the
cost-benefit of the proposed cap-and-trade option to determine the most cost
beneficial option for controlling mercury emissions. We also recommend that EPA
strengthen its cap-and-trade proposal by more fully addressing the potential for hot
spots; revising the safety valve proposal so that it is used only as intended during
periods of unanticipated market volatility; and revising the proposed exemption for
small emitters. Further, we recommend that the Agency conduct more in-depth
analyses of the regulatory alternatives and children's health impacts as required by
Executive Orders. The Agency's response to the draft report did not specifically
address our recommendations, but raised concerns about certain aspects of the
report.

-------