Washington (Platts)--31Mar2009

US Senator Tom Carper plans to introduce a bill in the coming months that
would regulate mercury, nitrogen oxides and sulfur dioxide emissions from
coal-fired power plants, an aide said Monday.

The Delaware Democrat -- who chairs the Clean Air and Nuclear Safety
subcommittee of the Senate Environment and Public Works Committee -- has given
up plans to introduce a bill that would have regulated carbon dioxide in
addition to NOx, SO2 and mercury.

The aide said Carper's decision was based on the Obama administration's
plans to move forward on greenhouse gas rulemaking and the House of
Representatives and Senate's plans to move a comprehensive, sector-based
climate change bill. The sectors involved would include areas such as
coal-fired generation and transportation.

And therefore, Carper is "moving away from a sector-based carbon dioxide
bill," the aide said.

Carper plans to hold a hearing to learn from the Environmental Protection
Agency what lies in store for utilities in the post-CAIR ruling world.

Based on that hearing, the aide said, Carper would "drop a bill" that
would use a command-and-control approach for mercury emissions and a
cap-and-trade approach for NOx and SO2. No timeframe has been decided for the
senator's bill.

Under the Clean Air Interstate Rule, companies in the 25 participating
states would have had to surrender 2 allowances/ton of SO2 in 2010 and 2.86
allowances/ton of SO2 emitted in 2015.

But, the US Court of Appeals for the District of Columbia Circuit
initially invalidated CAIR, especially the SO2 allocation formula for
allowances, in July 2008.

However, in response to petitions filed not only by EPA, but also by
utilities, the court temporarily reinstated the rule in December 2008 with
orders to EPA to rejig the SO2 allocation before 2010 based on the objections
it raised in the July 2008 decision.

Specifically, the court said EPA's decision to choose the existing Title
IV Acid Rain program to cap SO2 emissions "may have been valid," but it went
on to declare that EPA did not have the authority and "no statute confers
authority on EPA to terminate or limit Title IV allowances" from the market,
as it was doing under CAIR.

Based upon this ruling, EPA has no alternative but to impose a fixed cap
with no trading provision for these two pollutants, the aide said.

Such a fix, according to observers, would spell disaster for the SO2
market, which is already trading at record low levels.

Sam Napolitano, director of EPA's Clean Air Markets Division, has already
told the members of the Environmental Markets Association that a replacement
CAIR rule could take up to two years to create.

"What we need is a 'clean' legislative CAIR fix" -- with no mercury and
no CO2 involved -- to keep the markets going, Gary Hart, ICAP Energy analyst,
said Friday.

--Amena Saiyid, amena_saiyid@platts.com