Hatfield’s Ferry Power Station, a Pennsylvania coal-fired power plant, stopped producing electricity in 2013. Its closure came in a wave of coal-plant shutdowns triggered by competition from cheaper, cleaner natural gas and incentives in the US Clean Air Act.
But the facility’s legacy of smog pollution continued long after it closed.
That’s because a loophole in clean-air regulations allowed Hatfield’s Ferry to collect emissions allowances under a cap-and-trade program for five years after it shut down. The plant’s owner then sold those credits to other plants, which can use them to stay in compliance when they exceed their own regulatory budget of allowances. Among the beneficiaries: the biggest emitter of smog-causing gas in America’s power sector.
Under the federal program, states distribute a certain number of allowances to power plants annually. Each one permits one ton of nitrogen oxide (NOx) emissions. NOx contributes to smog, which causes respiratory problems and premature death.
If a plant doesn’t use all of its allowances, it can sell them to other plants. The credits are valuable because they can provide plants a cheaper alternative to buying and operating hugely expensive pollution-control equipment.
The provision grants closing plants a credit windfall: They can sell all of their allowances because they are no longer generating smog themselves.
A Reuters review of federal data shows the owner of Hatfield’s Ferry, FirstEnergy Corp (FE.N), sold most of the credits it received after closing the plant or transferred them to other FirstEnergy-owned facilities. One batch, worth an estimated $1.2 million, helped Missouri’s New Madrid Power Plant in 2021 comply with emission regulations while generating the most smog-producing NOx in the nation. Reuters found dozens of other examples of coal plants using credits from closed facilities to help comply with pollution rules over the past five years.
FirstEnergy Corp (FE.N) declined to comment.
As the climate-change fight intensifies, governments worldwide have struggled to phase-out coal, among the dirtiest fossil fuels, without harming reliability and affordability of electricity. That issue and other environmental challenges are getting heightened attention today, April 22, on International Earth Day.
The issue highlights an unintended consequence of the US EPA’s latest revision of the Cross-State Pollution Rule (CSAPR), first enacted in 2011 as a provision of the Clean Air Act. The measure is aimed at cutting air pollution from upwind states that harms air quality in downwind states.
The Environmental Protection Agency (EPA) last month moved to reduce the impact of closed-plant allowances by reducing the number of years a retired facility can collect them from five to two. But the previous policy had already injected the market with a huge volume of credits that will take years to work their way through the system: Between 2017 and 2020, for instance, the ratio of allowances available to comply with NOx-pollution regulations during the peak ozone season surged. In 2020, there were 2.5 allowances available for every ton of NOx pollution emitted by plants in the cap-and-trade program, compared to 1.5 allowances per ton in 2017, EPA disclosures show.
Retired-plant allowances fueled the liquidity. In 2020, about 20% of the 585,000 allowances available to cover 232,000 tons of emissions were from power plants that had retired at least one coal-fired unit in the past decade, federal data show. The power sector lobbied last year to keep the closed-plant credits flowing, according to letters sent to the EPA by utilities and electric cooperatives.
Associated Electric Cooperative Inc (AECI), the New Madrid plant’s owner, said in a statement that it was cheaper to buy allowances than run the facility’s pollution controls. “This is the EPA’s cap-and-trade allowance program working as designed,” AECI said.
Reuters