EPA tells coal-fired plants to reduce pollution. Some may just shut down.

[Editor's note: The headlines and story have been updated to clarify that while EPA's actions may cause some power plants to be closed, the agency is not mandating their closure.]

The Environmental Protection Agency today unveiled tough new air pollution regulations aimed at dramatically cleaning up emissions of coal-fired power plants and boosting air quality across 27 states, a move analysts say will likely cause scores of older, inefficient plants to become uneconomical and be shut down.

Effects should appear relatively quickly. Under the new Cross-State Air Pollution Rule, some 900 coal-fired, natural gas-fueled, and oil-burning power plants must slash emissions by 2014.

"This is a real milestone," exulted Frank O'Donnell, president of Clean Air Watch, a Washington-based environmental group in a statement. "This is a long-overdue and much-needed step towards protecting the health of people in states downwind of big coal burning power plants. It will prove to be a life saver."

But beyond environmentalists’ cheers, industry groups were predictably upset. Coal-state lawmakers and industry groups predict the rule will harm the economy.

"The EPA is ignoring the cumulative economic damage new regulations will cause," said Steve Miller, president and CEO of the American Coalition for Clean Coal Electricity, an industry lobby group, in a statement. "Our industry needs adequate time to install clean coal technologies to comply with new regulations."

The industry doesn’t have long. By 2014, power plants must slash emissions of nitrous oxides (NOx) by 54 percent and sulfur dioxide (SO2) by 73 percent from 2005 levels. One likely response in Congress could be legislative "riders," amendments to squelch the regulations’ impact by slashing the budgets for enforcement, said Kevin Book, senior analyst with ClearView Energy Partners, an energy market research firm.

EPA officials, however, say that the utility industry was put on notice under the Bush administration's national air pollution plan, and most began upgrading facilities years ago.

Impact on air quality and public health

Effects of the new rule will sweep across the eastern US, vastly reducing the amount of fine particulate matter that blows from power plant smokestacks in the Midwest toward the east coast, affecting over 240 million Americans along the way, EPA officials said.

Annual benefits of $280 billion from the new regulations – much of it due to reduced health impacts – will easily outweigh the estimated $800 million annual cost of implementation and $1.6 billion per year in utility industry capital investments already under way, the agency reported.

The new rule will reduce sulfur dioxide and nitrogen oxides by about 8 million tons annually. This will vastly reduce acid rain, smog, and small particulates that harm public health, say EPA officials.

“These Clean Air Act safeguards will help protect the health of millions of Americans and save lives by preventing smog and soot pollution from traveling hundreds of miles and contaminating the air they breathe,” said EPA Administrator Lisa Jackson. It will "help ensure that American families aren’t suffering the consequences of pollution generated far from home, while allowing states to decide how best to decrease dangerous air pollution in the most cost-effective way.”

The EPA's move responds to a mandate from a 2008 US Circuit Court of Appeals for the District of Columbia decision, which overturned the Bush administration's national air pollution plan. The court found that the Bush plan failed to substantially maintain air-quality standards among states – and ordered the EPA to develop a new rule.

Since the rule’s outlines were unveiled a year ago, industry groups have responded with studies indicating the costs would be substantial. One recent study conducted for the American Coalition for Clean Coal Electricity claims 1.4 million jobs lost by 2020 from a combination of today's cross-state rule and another pending rule that would limit mercury emissions.

Other studies, however, like "New Jobs-Cleaner Air," published by University of Massachusetts economists in February, found that EPA air pollution regulations would actually create up to 300,000 new US jobs in each of the next five years, as companies upgrade plants and equipment.

American Electric Power, one the nation’s largest utilities and one of the biggest complainants about the new rule, announced last month that these new air regulations would cause "premature" shutdown of a quarter of its coal-generating capacity, causing electric rate increases and the loss of hundreds of jobs.

“The cumulative impacts of the EPA’s current regulatory path have been vastly underestimated, particularly in Midwest states dependent on coal to fuel their economies," said Michael G. Morris, chairman and chief executive officer of American Electric Power, in a statement last month. "The sudden increase in electricity rates and impacts on state economies will be significant at a time when people and states are still struggling."

But when speaking to investors on June 1, Mr. Morris seemed far more sanguine about the new air pollution rules and the resulting coal-fired plant closures, news reports indicate.

"On balance, we think that is the appropriate way to go," Morris said of the closures, the National Journal reported. "Not only to treat our customers, but also to treat our shareholders, near and long term, with that small amount of the fleet going off-line."

Plants that can’t be scrubbed get scrapped

Scores of aging plants, with little or no pollution abatement equipment, will be too costly to upgrade. Of the approximately 600 coal-fired power plants in the US, more than 86 could be forced into early retirement, according to the North American Electric Reliability Corporation, which oversees the power grid.

Yet some studies have shown that such closures will actually produce financial benefits to the utility industry.

Up to one-fifth of the nation's coal-fired power plants – the oldest, smallest plants, with few emissions controls – could be closed as a result of the new cross-state rule and other expected air pollution mandates expected in the next few years, predicted "Growth From Subtraction: Impact of EPA Rules on Power Markets," a Credit Suisse study issued last fall.

Still, the Credit Suisse study foresees a positive long-term outcome for investors, as big utility companies shed these old, inefficient plants. EPA rules, it said, "simply accelerate an inevitable market tightening by 4-5 years," as coal – for decades the low-cost fuel for energy production – cedes to natural gas.

For state air quality regulators on the front lines, the new rule can't come soon enough. They expect to see reductions in the costs many states currently must shoulder from pollution that blows in from power plants upwind.

"This is the biggest thing we've seen in decades," says John Paul, administrator of the Regional Air Pollution Control Agency in Dayton, Ohio, a state regulator. "You'll definitely see a difference in reactions depending on the utility. Some aren't complaining at all. Those with well-controlled, fairly modern units don't see this rule as a big burden. But utilities with coal-fired units 40-60 years old now know the end for those is near – and they're hollering."

But his sympathy, he says, has its limits.

"Those old, decrepit plants were paid for decades ago and have made a lot of money for these companies – and they should have been replaced long ago," he says. "For 20 years we've been anticipating this – and I, for one, think it’s about time."