On March 15, 2023, EPA finalized its Good Neighbor Plan under the Clean Air Act (“CAA”), a rule designed to reduce smog-forming nitrogen oxide (“NOx”) pollution from power plants and other industrial facilities in 23 upwind states that impact compliance with ambient air quality standards in downwind states. This rule will have a significant impact on power plants emissions in 22 states beginning in 2023, and will impose additional emission limits on certain industries, such as cement manufacturing, mining and solid waste combustion, in 20 states beginning in 2026.

Background

The CAA requires each state to submit State Implementation Plans (“SIPs”) that contain rules, plans and programs that will lead to compliance with the National Ambient Air Quality Standards (“NAAQS”). In these SIPs, states are required to ensure that air pollution sources in the state do not contribute to nonattainment of the NAAQS in other states. This requirement is known as the “Good Neighbor” provision of the CAA. On January 31, 2023, EPA determined that 21 states failed to meet the Good Neighbor requirements by failing to address interstate transport of ozone-creating NOx pollution in their SIPs. That action paved the way for EPA to institute Federal Implementation Plans (“FIPs”) in a total of 23 states to ensure that the Good Neighbor provisions were being addressed.

States Impacted

EPA will ensure that NOx emissions reductions are achieved by issuing FIP requirements for 23 states: Alabama, Arkansas, California, Illinois, Indiana, Kentucky, Louisiana, Maryland, Michigan, Minnesota, Mississippi, Missouri, Nevada, New Jersey, New York, Ohio, Oklahoma, Pennsylvania, Texas, Utah, Virginia, West Virginia, and Wisconsin.

Source: https://www.epa.gov/csapr/good-neighbor-plan-2015-ozone-naaqs

As depicted above, beginning in 2023, power plants in 22 states will participate in a revised and strengthened Cross-State Air Pollution Rule (“CSAPR”) ozone season trading program. Beginning in 2026, NOx emissions standards for certain sources within nine industry categories will become effective in 20 states.

Restrictions on Power Plant Emissions and Emissions From Other Industries

The most immediate impacts of this Good Neighbor Plan will be on power plants located in the 22 states identified above. Beginning in May 2023, the Rule will limit emissions of NOx from power plants in state emission budgets that reduce every year beginning in 2023. The total NOx emission budget for these states in 2023 is 208,119 tons; by 2029 the NOx emission budget reduces by almost 50% to 105,201 tons.

EPA is basing the initial budgets on the level of reductions achievable through immediately available control measures, including consistently operating emissions controls already installed at power plants. Further reductions will be phased in over several years starting in 2024 and reflect emissions levels that EPA has determined can be achieved through installation of new emissions controls.

In addition to power plant regulation, beginning in 2026, the rule imposes new emission limits or other control requirements on existing and new sources in the following specific industrial sectors in the 20 states shown above:

• Reciprocating internal combustion engines in Pipeline Transportation of Natural Gas;
• Kilns in Cement and Cement Product Manufacturing;
• Reheat furnaces in Iron and Steel Mills and Ferroalloy Manufacturing;
• Furnaces in Glass and Glass Product Manufacturing;
• Boilers in Iron and Steel Mills and Ferroalloy Manufacturing, Metal Ore Mining, Basic Chemical Manufacturing, Petroleum and Coal Products Manufacturing, and Pulp, Paper, and Paperboard Mills; and
• Combustors and incinerators in Solid Waste Combustors or Incinerators.

Regarding the industry-specific restrictions, individual facilities may be eligible for a one-year compliance extension, with EPA’s approval; and if specific additional criteria are met, EPA may grant additional compliance extensions of up to two more years.

Rule Impacts

EPA estimates that the Good Neighbor Plan will have a significant impact on reducing ozone pollution and have an overall net positive economic impact. According to the EPA fact-sheet:

EPA estimates that the final Good Neighbor Plan will reduce ozone forming NOx emissions from the 23 significantly contributing upwind states by approximately 70,000 tons during the 2026 ozone season (May 1 – September 30) compared to a business-as-usual scenario.

EPA estimates that the cost of achieving the emission reductions mandated by the Good Neighbor Plan is approximately $910 million annually over the period 2023 to 2042. EPA also stated that it made adjustments to the Rule to ensuure that the power sector can continue to deliver reliable electricity while complying with the Rule’s requirements. Overall, EPA estimates that the net present value of this rule over the period from 2023 to 2042, after taking into account compliance costs, is $200 billion.

The focus in the short term is on how this Good Neighbor Plan will impact power plants in the relevant states, but there will be significant impacts on the other target industries as well. In addition to the direct impacts the emission controls will have on those industries, the emission limits on cement kilns and solid waste incenerators may impact the availability of already limited solid waste and hazardous waste disposal options across a variety of industries. EPA has the ability to grant compliance extensions, and we will be watching closely to see how that leniency is doled out.

Additionally, like most environmental rules in the current era, the Good Neighbor Plan has been challenged already. Arkansas, Oklahoma and Texas have filed suit, challenging EPA’s rejection of their SIPs and implementation of the Good Neighbor Plan as a FIP instead. Additional lawsuits are likely, and a stay of the Good Neighbor Plan while the states litigate their cases is a possibility.

More information on the Good Neighbor Plan is available on EPA’s website. The Corporate Environmental Lawyer Blog will monitor and report on any regulatory or litigation developments with the Good Neighbor Plan.