The EPA’s Proposed Ground Ozone Standard
Editor’s Note: This article was originally published in Issue 2, 2015 of American Coal Magazine (pg. 30-32)
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Too much, Too fast
By Ken Ditzel and Rob Fisher, FTI Consulting
On November 25, 2014, EPA proposed to strengthen the national ambient air quality standards (NAAQS) for primary and secondary ground-level ozone standards to 65 to 70 ppb from the current standard of 75 ppb set in 2008. The 2008 standard is just now at the beginning stages of implementation planning and far from compliance. Many liken EPA’s proposed actions to “moving the goalposts” before the compliance mechanisms for meeting the 2008 standard are implemented and its health benefits and economic costs are fully understood. Numerous scientists and economists consider the latest proposal to be too much, too fast, or, in other words, it is simply premature.
Compounding the current proposal’s prematurity are the increasing facts that show the proposal lacks merit across three key areas – health science, atmospheric science, and economic net benefits. As analysts dig through and analyze EPA’s numbers justifying the proposed standard, more and more arrive at the conclusion that the proposal is supported by emotion, smoke, and mirrors as opposed to rigorous scientific and economic analysis. An analogy is an academic paper that presents a compelling, introductory hypothesis, but a detailed read uncovers facts and logic twisted to support a convenient answer.
This article examines some of the main issues with EPA’s analysis of the health science, atmospheric science, and economic net-benefits of its proposal and the ramifications for the power sector.
Context
Ground ozone or smog is formed by two principal precursors – nitrogen oxides (NOx) and volatile organic compounds (VOC) – both of which are formed by natural process (VOCs via decomposition of organic matter and NOx via intrusion by the stratosphere) and by human or anthropogenic activities (mainly through the combustion of fossil fuels).
Mobile sources (i.e., on-road and off-road vehicles) represent the majority of ozone precursor emissions as shown in Figure 1. Ozone precursor emissions from on-road mobile sources are targeted in EPA’s Tier 3 standards and not in this proposed standard.
Figure 1: Sources of Anthropogenic Ozone Precursors
The U.S. has significantly reduced its NOx emissions by a combination of regulatory mandates and technology advancement. U.S. anthropogenic NOx emissions have decreased by 33% from 1980 to 2013 while real GDP has increased by 142% during the same period. In just the power sector, NOx emissions have decreased by 55% from 2004 to 2013. Infamous smogs, such as the Denver “Brown Cloud,” are gone and almost all of the country is in attainment at the 1997 standard of 80 ppb. EPA estimates that compliance with the proposed rule mostly will come from reductions made in the power generation (Electric Generating Units – EGU), manufacturing (non- EGU point), and mining sectors (Nonpoint) as illustrated in Figure 2. Mining includes oil and gas production.
Figure 2: EPA’s Estimated Reductions Required by Sector (Source: EPA, RIA Tables ES-1 and ES-2)
Figure 2 shows that complying with the proposed 65 ppb standard will be significantly more challenging than the 70 ppb standard. To achieve a 7% reduction from the 70 ppb standard, the 65 ppb standard requires an increase in NOx reductions of 724%, 113%, and 76% from EGU, Non-EGU Point, and Non-point emitters, respectively.
A 65 ppb standard would entail retrofitting the remaining non-peaking power generators with selective catalytic reduction (SCR), impacting approximately 125 GW of coal units. This would amount to more than $50 billion in SCR investment required.(1)
Health science issues
EPA places a lot of weight on reducing asthma prevalence as being one of the main health benefits of its proposal. However, trend analysis shows there is absolutely no link between asthma prevalence and ozone levels (see Figure 3). In fact, the trend analysis suggests that decreasing ozone levels result in increasing asthma prevalence levels!
Figure 3: Ozone Levels Decrease while Asthma Prevalence Increases
Figure 4 goes a step further by showing the results of a regression analysis of asthma prevalence versus county ozone levels. The asthma prevalence data comes from an American Lung Association methodology for extrapolating state-level asthma prevalence onto counties. The ALA is a major supporter of the EPA’s proposed ozone standard. The county ozone data comes from the EPA. The chart shows in common terms a “shotgun” result (i.e., in statistical terms, almost no correlation between asthma prevalence and ozone levels).
Figure 4: County-level Asthma Prevalence Rates vs. Ozone Levels (Source: EPA, American Lung Association)
This obvious inconsistency between asthma and ozone is completely overlooked either intentionally or unintentionally by the EPA and has infuriated lawmakers, employers, and employees as the proposed standard could have tremendous impacts on local and state tax revenues, business decisions, and jobs.
Atmospheric science issues
The EPA’s proposed standard also lacks merit in its atmospheric science conclusions because the EPA glosses over two major, external contributors to local ozone levels:
- Background ozone: naturally occurring, local ozone levels that results from regional, weather-related events
- Foreign ozone: emissions from Asia, Canada, and Mexico polluting U.S. skies
To the uninformed, ground ozone is considered manmade and can be eliminated completely. Ground-level ozone, however, is a natural occurrence. The mountainous West serves as a type of example. The region is exposed to weather events, also called stratospheric intrusions, which pull ozone down from the ozone layer to ground level. These occurrences are frequent enough to cause high ozone levels in low-populations counties with little to no industrial or fossil-fired power generation. This is clearly the case in the sparsely-populated Western Slope counties of Colorado where Gunnison, La Plata, Mesa, Montezuma, and Rio Blanco would all be in violation of the 65 ppb.(2)
Figure 5: Colorado Western Slope Counties in Non-Attainment at 65 and 70 ppb
The EPA does not consider the impact of foreign ozone pollution impacting U.S. air quality even though it can play a major role in setting background ozone levels. Figure 5 illustrates the origin of these pollutants.
Figure 6: Impact of Foreign Air Pollutants on the U.S. (Source: U.S. Chamber of Commerce — www.uschamber.com/issue-brief/ozone-nationalambient- air-quality-standard)
For the West Coast, industry from Asia is a major contributor to its ozone challenges. The impact has been well-documented by a number of researchers. A 2014 study in the Proceedings of the National Academy of Sciences (PNAS) found the following:
“Chinese pollution contributed… …0.5– 1.5% of ozone over the western United States in 2006. This Chinese pollution also resulted in one extra day or more of noncompliance with the US ozone standard… …over the Los Angeles area and many regions in the eastern United States.”(3)
This statement was based on 2006 data. Nine years later China’s industry has grown significantly and the Chinese contributions to West Coast ozone are likely higher. By the absence of discussion in its supporting documents, EPA clearly is ignoring or unaware of Asian pollution and other background issues.
Economic net benefits issues
EPA estimates (non-California) net benefits (health benefits minus costs) of $2.5 to $9.1 billion for the 70 ppb standard and $4 to $23 billion for the 65 ppb standard. 4 There are two main criticism of EPA’s net benefit analysis:
- EPA’s cost projections rely on non-existent, future technologies to achieve emission reductions
- Assuming future technologies are invented, the EPA ignores the law of diminishing marginal returns
EPA acknowledges its approach to estimating costs of future, unknown technologies to be highly uncertain:
“The EPA recognizes the unknown emissions control portion of the engineering cost estimates reflects substantial uncertainty about the sectors and technologies that might become available for cost-effective application in the future.” (RIA, Section 7.3) and
“We do not have information on the control measures and costs for the remaining uncontrolled NOx emissions.” (RIA pg. 7-4)
Given the uncertainty, EPA arbitrarily places a cost cap of $14,000 per ton of NOx emissions reduced. Capping the costs of emissions reduction defies the law of diminishing marginal returns, which dictates that as you approach a limit (in the case of ozone it is the natural background level), costs increase significantly to achieve each marginal unit of reduction.
These diminishing marginal returns for ozone are best shown by reports conducted for the American Petroleum Institute. As shown in Figure 6, the report shows that the true economic cost of the 65 ppb standard would be $140 billion in lost GDP. This is 833% higher than EPA’s cost estimate of $15 billion.
Figure 7: Economic Costs of Compliance with the 65 ppb Standard (Billions of $’s) (Source: EPA; “Economic Impacts of a 65 ppb National Ambient Air Quality Standard for Ozone: Executive Summary”, NERA, February 2015)
Concluding thoughts The EPA has staked its reputation on the success of this proposal. Its mission is to protect the environment through regulations based upon rigorous scientific analysis. The EPA also must adequately consider the economic net benefits as the Supreme Court recently ruled on the EPA’s Mercury and Air Toxics Standard. However, EPA misses the mark on scientific rigor in its proposed ground ozone rule. It overlooks key evidence that shows the linkage between asthma and ozone is non-existent, foreign pollutants significantly impact our air quality, and natural background levels limit how much ozone can be controlled. There are simply too many holes in EPA’s argument. At best, the EPA may be able to sneak by on emotion, smoke and mirrors at 70 ppb, but at 65 ppb the likelihood of litigation contesting the rule and the further tarnishing EPA’s credibility increases exponentially.
— Ken Ditzel is managing director and Rob Fisher is Senior Director at FTI Consulting (http://www.fticonsulting.com).
- Based on the Energy Information Administration’s SCR cost estimate of $200/kW for a 500-699 MW coal plant in its Annual Energy Outlook 2015 Electricity Market Module.
- Average is based on EPA’s determination of nonattainment, which an exceedance of the standard based on a 3-year average of the 4th highest, 8-hour rolling average for each year.
- “China’s International Trade and Air Pollution in the United States,” Jintai Lin, et. al. Proceedings of the National Academy of Sciences, February, 2014.
- California would be on a different compliance timeline in the proposed EPA rule, so EPA separates out the non-California costs and benefits.