Washington (Platts)--4Feb2010/611 pm EST/2311 GMT

US senators Tom Carper, Democrat-Delaware, and Lamar Alexander, Republican-Tennessee, on Thursday introduced legislation to tighten limits on sulfur dioxide and nitrogen oxide emissions from power plants nationwide starting in 2012 and require at least a 90% reduction in mercury emissions from coal- and oil-fired generation for the first time.

Supporting the bill with Carper and Alexander are Democrats Chuck Schumer of New York, Dianne Feinstein of California, Amy Klobuchar of Minnesota, Jean Shaheen of New Hampshire and Ted Kaufman of Delaware, and Republicans Susan Collins of Maine, Judd Gregg of New Hampshire and Lindsey Graham of South Carolina.

The bill calls for the US Environmental Protection Agency Administrator to set national standards by 2012 to ensure that coal and oil-fired generating units as a whole achieve at least a 90% reduction in mercury emissions.

If the agency fails to set timely standards, by 2015 all these existing generating units would be required to meet mercury emission limits through maximum achievable control technology standards determined on a case-by-case basis, under the legislation.

The bipartisan bill takes a market-based approach to further reducing power plant pollution of SO2 and NOx emissions, which are already subject to regional cap-and-trade programs. Existing rules on SO2 and NOx under the Clean Air Act would remain in place under the bill through 2011.

Beginning in 2012, national annual limits on SO2 emissions from power plants would be at 3.5 million tons then tighten to 2 million tons in 2015 then 1.5 million tons in 2018.

Starting in 2021 and each calendar year after that, SO2 emissions would be limited to 1.5 million tons or less if the EPA determines pollution levels must be reduced further to protect the public's health or meet national ambient air quality standards.

For NOx reductions, the bill creates two zones--one for the eastern half of the US and one for the western half--and calls for EPA to promulgate rules for two NOx cap-and-trade programs by 2011.

Beginning in 2012, affected units in the eastern half of the US would emit no more than 1.39 million tons of NOx per year. By 2020 these units would face a cap of 1.3 million tons or less each year as determined by EPA to protect public health and meet national air standards.

Western states would face a NOx limit of 510,000 tons a year beginning in 2012. The cap would tighten in 2020 to 320,000 tons or less each year thereafter as determined by EPA.

EPA would determine the SO2 and NOx allowance pools and distribution rules by 2011. Allowance auctions would increase by 10% each year, decreasing the number of free allowances over time.

Previously held SO2 and NOx allowances could be used by power plants to aid their compliance with the new emission targets set in the bill, but all allowances issued previously by EPA for 2012 and beyond would have no value.

For SO2, allowances issued before 2010 would be equal to 1 ton of SO2. Allowances issued for vintage 2010 or 2011 would equal one-half ton of SO2.

Carper and Alexander have introduced bills in previous years to cut power plant emissions of SO2 and NOx through an emissions allowance market while mercury -- a neurotoxin -- was addressed with a set cap.

Carper and Alexander have also sought support in past legislation for adding carbon dioxide emissions to their bills.

Carper has said that he was open to a broader bill but he and Alexander would begin with these three pollutants -- NOx, SO2 and mercury -- in their latest legislative attempt to curb power plant pollution.

Meanwhile, Graham is working with Senator John Kerry, a Massachusetts Democrat, and Joe Lieberman, Independent-Connecticut, on drafting a climate change policy bill that would set economy-wide targets on greenhouse gas emissions with a market mechanism to aid compliance.

At a briefing, Carper and Alexander said they introduced the bill as a stand-alone measure, not meant to be melded into a larger energy and climate change bill, because the issue is ripe to be dealt with and there is widespread agreement. "So we can argue about how to deal with carbon but there is no excuse to wait a minute on SO2, NOx and mercury," Alexander said.

Carper said that he looked forward to speaking with EPA Administrator Lisa Jackson about the issue as well as EPA's ongoing administrative work on resolving the issue. Nevertheless, he underscored that EPA's actions have ended up in court and forced the need for his bill. "Ten more years of litigation, I am not interested in that," he said.

Carper said the Clean Air and Nuclear Safety Subcommittee he heads is planning a hearing later in February on the bill and that he has spoken with Senator Barbara Boxer, the chairwoman of its parent panel, the Environment and Public Works Committee. "She's in favor of it," he said, referring to bringing it up before the full committee as well as moving it forward.

Carper said he had no timetable for when votes may occur but said its language may be tweaked after the subcommittee hearing and what he hopes will be a full committee hearing.

Five utilities -- Exelon, PSEG, Calpine, Entergy and National Grid -- wrote letters of support for the bill, which would provide much needed clarity about future regulation of acid rain emissions.

--Cathy Cash, cathy_cash@platts.com

--Christine Cordner, christine_cordner@platts.com