OPENING REMARKS

CHAIRMAN GEORGE V. VOINOVICH

SUBCOMMITTEE ON CLEAN AIR, CLIMATE CHANGE AND NUCLEAR SAFETY

S. 485, The Clear Skies Act

June 5, 2003

The Hearing will come to order. Good Morning.

This hearing is the third hearing we have had on the Clear Skies Act (S. 485) and continues a discussion that we have had in this Committee for several years on the complex issue of how to clean our air by reducing emissions without doing irreparable harm to our economy and this country’s competitive position in the marketplace.

Today’s hearing will focus on the issues surrounding current and projected emissions-control technologies and their impact on utility-sector investments.

Several times throughout the course of these hearings, I have stated that we need to enact a comprehensive energy policy that harmonizes the needs of our economy and our environment. We cannot forget that one of the major reasons that we have been successful economically and competitive in the world marketplace is our ability to purchase reliable, affordable energy supplies.

We must also keep in mind that we must do better in protecting the quality of our air. Despite the fact that the Clean Air Act has been extremely successful in reducing emissions of pollutions – emissions of all criteria pollutant have been reduced by 29 percent since the Act was passed in 1970 despite the fact that both electricity and energy use have both increased significantly over the same period – there is significant room for improvement.

As we look at the issues surrounding emissions-control technologies and the financial stability of our utility sector, it is very clear that the nexus between environment and economy is – rather than an academic or political exercise – a very real issue for those who will be affected by the decisions we make on this Committee and in the Senate.

The Clear Skies Act establishes legislative emissions caps for SO2, NOx and Mercury that will require utilities to reduce their emissions of these pollutants by approximately 70% by 2018. In order to meet these reduction requirements utilities will need to rely on different technologies to capture each of the pollutants.

The primary technology used by utilities to reduce SO2 is a Flue Gas Desulphurization (FGD) unit – also called a “scrubber” – which can achieve about 95% reductions in SO2 emissions.

Utilities that need to reduce NOx emissions generally install Selective Catalytic Reduction (SCR) units – which can remove about 90% of the NOx in power plant emissions.

In order to reduce emissions of mercury, utilities must rely on the combination of scrubbers, SCRs and other emissions-reduction technologies that are currently available until new mercury-specific technologies are brought online. The level of mercury removal from this method depends upon the combination of control technologies used and the rank (bituminous, sub-bituminous, or lignite) and composition (chlorine level) of coal.

Investor-owned utilities, co-ops and municipal generators – in conjunction with the Administration and others in the public sector – are currently working on development of several new mercury-specific control technologies, including Activated Carbon Injection (ACI), Clean Coal Technologies and Integrated Coal Gasification Combined Cycle Technologies (IGCC). However, demonstration projects using these technologies are in their infancy and results have varied greatly.

The technologies that utilities, co-ops and municipal generators have to install in order to meet clean air requirements constitute major capital investments for those entities. I can recall – when I first became Governor of Ohio – I put into place a plan that helped AEP to add scrubbers to their Gavin plant in order to reduce SO2 emissions. These scrubbers cost over $675 million (over a decade ago). I also understand that AEP has recently installed SCRs at Gavin in order to reduce NOx emissions – at an additional cost of over $250 million.

Although the capital expenses that generators have had to install to date are high, the projected expenses for installing new equipment to meet new EPA regulations will be even higher. I understand that over 100,000 megawatts of coal power plant capacity will have to be retrofitted with SCRs by 2005 in order to meet the requirements of the NOx SIP call. Additional equipment will be required to meet EPA’s new standards for ozone and particulate matter that will go into effect in 2004 and 2005.

Further, EPA is set to propose a new rule on the mercury MACT next year that will require significant reduction in mercury emissions by 2008 – despite the fact that we don’t have any mercury-specific reductions technologies available to install.

It is understandable why many people feel that the environmental policies that have been developed over the last decade have focused more on eliminating coal-based generation than on eliminating emissions. This is despite the fact that over 50% of our electricity generation is coal-based and that we have over 250 years worth of coal available domestically.

These tremendous capital expenses for installation of emissions-reduction technologies have direct impacts on generators’ ability to provide reliable affordable, reliable electricity to residential, industrial and manufacturing customers.

Utilities, co-ops and municipal generators that rely on coal for a large percentage of their generation are facing the choice of either investing hundreds of millions of dollars on emissions-control technologies or fuel switching to natural gas in order to meet air quality standards. Further, the California electricity crisis, the recent energy trading scandals, and significant increases in natural gas prices have left utilities financially strapped and forced several major energy companies to declare bankruptcy. The end result will inevitably be higher energy prices and a drag on our economy.

All sides in the current debate on multi-pollutant legislation agree that the current approach to regulation utilized by EPA is plagued with burdensome and overlapping regulations that are subject to costly and time-consuming litigation and have become unnecessarily costly. In our first hearing on this topic, I stated that there are now more than a dozen separate regulations on the books for sulfur dioxide (SO2) and nitrogen oxide (NOX) – with additional regulations around the corner. We also discussed the fact that litigation over several of these regulations has already delayed their implementation, forestalling the air quality benefits that they were designed to achieve.

The patchwork of existing and soon-to-be-implemented regulations, coupled with the delays bred by continuous litigation has created enormous uncertainty for utilities, co-ops and municipal generators. This uncertainty has curtailed investments in technologies that would reduce emissions at existing plants, prevented numerous new facilities from coming online and caused several utilities to consider phasing-out coal-based generation altogether by fuel switching.

When the implementation of Clean Air Act provisions, other federal environmental regulations and state clean air laws combine to create uncertainty for electricity generators, they have a tremendous impact on the ability of private-sector utilities to raise capitol and make strategic long-term capital investment decisions – such as decisions on the purchase and installation of emissions-control technologies.

A prime example of this is the recent filing by the PG&E National Energy Group, which requested permission to shut down a 745-megawatt coal-fired plant in Massachusetts because it cannot meet a deadline to install $125 million worth of SCRs and Scrubbers. The New England Independent System Operator is likely to rule that the plant must stay online in order to prevent blackouts – forcing either the State of Massachusetts to loan the money to the utility or the ISO to pay for the installation of the SCRs and Scrubbers. In either case, the costs will likely be passed on directly to ratepayers. Without objection, I will add a recent article about this situation to the record.

It is absolutely imperative that we act to pass legislation that will bring sanity to our environmental policy and prevent situations like this from taking place. Clear Skies will eliminate many of the problems that have arisen from EPA’s implementation of the Clean Air Act. It will result in significant emissions reductions and protect our air quality. It will provide generators with a realistic and certain timetable to meet emissions limits. And it will ensure that they can continue to provide affordable, reliable electricity to residential, industrial and manufacturing customers.

As I mentioned at the beginning of my remarks, this is the third hearing we are holding in this Subcommittee on Clear Skies. I also intend to mark-up Clear Skies at the Subcommittee level as soon as possible following this hearing – and I want to restate my firm commitment to push hard to have the full Committee report a bill to the floor - and to have the Senate pass it – this Congress.

I want to thank our first witness this morning, Chairman Croszner, for coming to present the Administration’s take on these vital issues to the Subcommittee. I also look forward to the testimony of our other witnesses.