U.S. EPA Good Neighbor Plan Update

Industrial smoke stacks

On August 4, 2023, the United States Environmental Protection Agency’s (U.S. EPA) “Good Neighbor Plan (GNP)” went into effect, requiring power plants and certain industrial facilities to implement emissions reductions through the installation and implementation of strict nitrogen oxide emission controls. U.S. EPA issued this new rule in compliance with the Clean Air Act (CAA), which mandates that U.S. EPA review and update the air quality standards for six pollutants that are considered harmful to the public’s health and the environment. In particular, the GNP regulates emissions of one of these pollutants: nitrogen oxide (NOx) (also referred to as “ground-level ozone” or “smog”).

Overview of the GNP

The goal of the GNP is to reduce NOx pollution during the “ozone season” (typically May 1 – September 30 each year) from power plants and industrial facilities in states that contribute to NOx pollution in other states. Exposure to NOx has been linked to respiratory issues and lung diseases and causes the most significant harm in children and older adults. The GNP is expected to greatly improve public health and advance environmental justice.

In determining which states would be subject to the new regulations, U.S. EPA went through a four-part framework to identify “downwind” states that are not expected to meet the air quality standards required by the CAA and the “upwind” states that significantly contribute to the air quality issues in the identified downwind states. This framework was also used to determine what pollution reduction measures would be imposed.

Under the GNP, industrial facilities in 20 states are subject to emission budgets beginning in 2024 that “decline over time based on the level of reductions achievable through phased installation of” existing and new NOx emission controls. While this type of program is not new, the GNP is unique because beginning in 2026, it applies to certain emission sources in nine additional new industries. Previous iterations of the plan released by U.S. EPA in years past applied only to the power industry. The additional emission sources and industries covered by the GNP are as follows:

  1. Reciprocating internal combustion engines used in the Pipeline Transportation of Natural Gas
  2. Kilns used in Cement and Cement Production Manufacturing
  3. Reheat furnaces and boilers used in Iron and Steel Mills and Ferroalloy Manufacturing
  4. Furnaces used in Glass and Glass Products Manufacturing
  5. Boilers used in Metal Ore Mining
  6. Boilers used in Basic Chemical Manufacturing
  7. Boilers used in Petroleum and Coal Products Manufacturing
  8. Boilers used in Pulp, Paper, and Paperboard Mills
  9. Combustors and incinerators used in Solid Waste Combustors or Incinerators

The GNP contains power-plant-specific requirements as well. Under the GNP, power plants in 22 states are subject to a cap-and-trade program for NOx emissions. This program is described as a “revised and strengthened” version of previous ozone season trading programs. The program sets daily emissions limits for large (at or above 100 MW) coal-fired units that, when exceeded by more than 50 tons, will result in a 3-for-1 surrender of emission allowances. For units that already have post-combustion controls installed, the limits become effective in September 2024. For units that are planning to install emission controls after 2024, the limits become effective one year after installation, but not later than 2030. The program also provides for an annual recalibration of the emissions allowance bank and the emissions budget bank, with the latter beginning in 2030 to account for changes in power generation.

U.S. EPA estimates that the GNP’s compliance costs will be approximately $910 million annually and the Plan’s benefits will be anywhere from $4.3 to $15 billion in 2026.

Mounting Legal Challenges

Despite the fact that the GNP went into effect in August of 2023, it has not been implemented in 12 of the 23 states to which it applies, due to pending court actions in those states. To understand the arguments in those cases, it is necessary to understand how the CAA operates. Under the CAA, each state is required to develop and implement a “state implementation plan” (SIP) to ensure it is not significantly contributing to non-attainment of U.S. EPA’s air quality standards for certain pollutants. U.S. EPA is then tasked with approving or disapproving each SIP. If U.S. EPA disapproves of a state’s SIP, it must develop a “federal implementation plan” (FIP), such as the GNP. Accordingly, before implementing the GNP, U.S. EPA issued a final order disapproving SIPs developed by 21 states.

Following U.S. EPA’s order, 12 affected states filed claims against U.S. EPA, and courts “stayed” the disapproval order, which effectively prevented implementation of the GNP in those states. As a result, the following states are not subject to the new standards or requirements in the GNP and will not be subject to them unless a Court finds that U.S. EPA lawfully disapproved of their SIPs: Alabama, Arkansas, Kentucky, Louisiana, Minnesota, Mississippi, Missouri, Nevada, Oklahoma, Texas, Utah, and West Virginia.

Further, in December of 2023, the U.S. Supreme Court agreed to hear a challenge to the GNP brought by industry groups and three states: Ohio, Indiana, and West Virginia. These parties argue that because the GNP has not been implemented in 12 of the states originally subject to the GNP, its application to the remaining 11 states is unfair and arbitrary. As a result, they argue the GNP should not be implemented in any state while the various court cases are pending. The Supreme Court is scheduled to hear oral arguments for this case on February 21, 2024.

Seemingly undeterred by the mounting legal battles, U.S. EPA released a proposed supplement to the rule on January 23, 2024, expanding the GNP’s applicability to five additional states: Arizona, Iowa, Kansas, New Mexico, and Tennessee. U.S. EPA cites new data that identifies these states as significant contributors to out-of-state pollution as the reason for the supplement. The comment period for this proposal will be open until March 25, 2024.

For more information, see U.S. EPA GNP.

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