When Pollution Crosses Borders

THE smokestacks at two power plants known as Carbon I and Carbon II are a long way from Washington, Ottawa, and Mexico City. But the smoke coming from these coal-fired plants is fueling new questions about the capacity of the North American Free Trade Agreement (NAFTA) to protect environmental quality.

There are currently six smokestacks towering over the prickly-pear cactus and mesquite trees that cover the arid flat lands near the power plants, which lie 20 miles southwest of the bridge that separates Piedras Negras, Coahuila, from Eagle Pass, Texas. Four stacks belong to Carbon I, a 1,200-megawatt plant built in the early 1980s. A half-mile south, construction cranes hover over two of the four stacks that will be built at Carbon II, a 1,400-megawatt facility to be completed by 1995.

These plants are subject to less stringent regulations than comparable US coal-fired plants. Environmentalists are concerned because winds in the region blow from the south and southeast, so smoke and pollutants from the plants will blow to the US while the electricity stays in Mexico.

"This is a perfect example of the relative weakness of the existing binational agreements for transboundary environmental problems," says Mary Kelly, executive director of the Austin-based Texas Center for Policy Studies, a nonprofit research and policy group that has been working on NAFTA issues for more than three years. "The current [pre-NAFTA] framework relies solely on informal cooperation between the environmental agencies of Mexico and the US. This framework is not adequate to deal with these kind s of complex situations involving major sources of pollution. NAFTA is an opportunity to strengthen the environmental framework for dealing with projects like Carbon II."

Expected to be the first power plant to be privatized in Mexico, Carbon II will soon be owned by a partnership of American and Mexican interests. Though it got little publicity until this year, it has gained the attention of some powerful people in Washington. The State Department, Commerce Department, and Department of Energy have all looked into the project. US Reps. Cardiss Collins (D) of Illinois, chairwoman of the Subcommittee on Commerce, Consumer Protection, and Competitiveness, and John Dingell ( D) of Michigan, chairman of the Subcommittee on Oversight and Investigations, have written to Environmental Protection Agency Administrator Carol Browner asking questions about the project. EPA staff members have spent weeks working on it and talking to the Mexican government and plant owners. Plant could affect 16 US parks

National Park Service officials have done extensive air modeling to assess the new coal plant's impact. Early analyses indicate that the plant could adversely affect up to 16 national parks, including Grand Canyon National Park in Arizona and Big Bend National Park in Texas, the state's biggest tourist attraction. "This plant holds the greatest potential threat to degradation of air quality in the park," said Big Bend Superintendent Robert Arnberger. "Our air modeling shows that the plant could reduce vi sibility in the park by up to 60 percent."

According to an internal EPA document obtained through the Freedom of Information Act, Carbon II will not have the same emission-control devices now required in the US. "The new units do not include any controls for sulfur dioxide and do not come close to meeting US new-source emission standards," it states. Both Carbon I and II burn lignite, a low-grade coal. When both units are fully operational, EPA officials expect that they will annually produce some 200,000 tons of sulfur dioxide, a gas that leads to the creation of acid rain.

EPA officials say the plant will release two to three times more sulfur dioxide than would be allowed at a comparable US plant. But they point out that the plants do not pose a health problem to US citizens. "We don't think there is any danger to the US population," said Jim Yarbrough, an environmental scientist for the EPA in Dallas. "We are not as concerned about the impact of acid rain as we are about the visibility impact," he added.

According to Mr. Arnberger, pollution from Mexico is already causing problems in American parks. He said Park Service scientists have concluded that air pollution from Carbon I and steel mills and industrial facilities in Monclova and Monterrey are responsible for more than half the visibility problems in Big Bend National Park.

Mr. Yarbrough said all national parks are considered Class I areas, which according to the 1977 amendments to the Clean Air Act, are supposed to have the cleanest possible air. All other regions of the country are Class II areas. Although these areas are covered by national ambient air standards, they do not have the stringent regulations that govern Class I areas.

"The National Park Service isn't concerned that tourists will get sick," he said. "They are concerned about reducing the number of clear days [in national parks]."

Until the law was changed by the Mexican government in December, all electric-power generation and transmission was the domain of Mexico's Commission Federal de Electricidad (CFE). But the agency is reportedly low on cash and needs capital to continue expanding.

The law change allowed Mission Energy, a subsidiary of Southern California Edison, to team up with GAN, a Mexican firm owned by the Ancira and Autrey families. GAN owns Altos Hornos, a large coal-fired steel mill - located in Monclova some 150 miles south of the new power plants - that is suspected of causing pollution in the Big Bend park. Mission Energy and GAN formed a company called ENERGAN; Mission owns 49 percent of it.

ENERGAN owns Micare, a coal-mining firm that will supply Carbon II with some 5 million tons of coal per year.

Mission Energy officials expect to buy Carbon II by year's end for $1.8 billion. Financing will come from the International Finance Corporation (an arm of the World Bank), Barclays, Citibank, and two Mexican banks, Bancomes and Banamix, among other banks. When the deal is completed, ENERGAN will sell electricity it generates at Carbon II to CFE. Carbon I will continue to be operated by CFE.

Large enough to power a US city of more than 1 million people, the two power plants are part of Mexico's effort to increase electrification. With a population expected to reach 150 million by 2015, Mexico's power needs are growing rapidly. Mexico City privatization experts say power needs will double over the next decade. And in the border area where maquiladoras [factories] are expanding, electricity will be in high demand.

With some 100 million people, Mexico has a generating capacity of only 27,500 megawatts. The US, with a population 2 1/2 times larger, has 27 times as much power-generating capacity. Canada, with a population about one-third the size of Mexico's, has nearly four times as much electric-generating capability. Coal is the fuel of choice

While American environmentalists may object to the new location of the two plants, they are among dozens of new facilities around the world that are fired with coal, the fuel of choice for the electric-power business. Since coal is relatively cheap and plentiful in the US, coal-fired power generation in the US has increased by almost 50 percent since 1980. About half of all power in the US is produced by burning coal.

Coal-fired power is on the rise worldwide. Since 1972, electricity produced in this way in developed countries has almost doubled, Organization for Economic Cooperation and Development figures show.

In Mexico, the amount of coal used for power generation has increased by 3,500 percent over the last 20 years. And although Mexico may want to produce more power with natural gas, coal in northern Mexico is relatively abundant. Natural gas is not. Four mines within a few miles of Carbon I and II produce coal for the plants; reserves are expected to last 30 years.

An American mining company called Dos Republicas Resources Company hopes to increase coal production in the region near the power plants. The company is trying to obtain federal and state permits that would allow it to strip-mine up to 3 million tons of coal per year in an area five miles north of Eagle Pass.

Kenneth Huebner, a San Antonio businessman, is a partner in the proposed project. "For Mexico and the US, coal is the only fuel source that we have that is a guaranteed fuel source with great availability," he said.

Much debate over the plant could be quelled if Mission Energy and its partners install scrubbers on smokestacks or convert the plant to run on natural gas instead of coal. The EPA has estimated the cost of installing scrubbers at $300 million, however, and Mission Energy has said it will not install scrubbers.

Converting to natural gas would also be problematic. The vast majority of Mexico's petroleum industry is in the south, near Campeche, and few pipelines run to the north. The northern state of Coahuila is believed to have substantial natural-gas reserves, but they are not developed.

Several pipelines now carry natural gas from Texas to Mexico, and one of them runs into Piedras Negras. With a surfeit of gas, Texas oilmen have been eagerly trying to increase sales to Mexico.

But Tom Reed, managing director of the Carbon II project for Mission Energy, says converting the plants wouldn't make sense. "The power plants were developed in Piedras Negras ['black rocks' in Spanish] because of the coal fields. If we were to convert to natural gas, it would appear to me that we would have employment problems in Mexico." He estimates that Micare employs some 4,000 mining workers. Many would be put out of work if the plant switched to gas. "Secondly," he said, "I am not aware of any sur plus gas that is available in those quantities for that plant."

Michelle Foss, an energy economist at the University of Houston's Center for Public Policy, says cost advantages of coal over natural gas will probably prevent conversion of the plant. "If you look at long-term coal and gas prices in the US, there is a consistent margin of difference with coal being less expensive than gas on a Btu basis."

The 1992 annual report of SCEcorp, the parent company of Southern California Edison and Mission Energy, says: "Edison has pledged to reduce carbon-dioxide emissions in the next two decades to address global-warming concerns. It is doing this through cost-effective energy-efficiency programs, virtually replacing oil with clean-burning natural gas in power plants."

The second largest utility in the country with 4.1 million customers in central and southern California, Southern California Edison also says the firm is "meeting stringent [regional] air-quality standards." Environmentalists point to these statements and the fact that John Bryson, SCE chief, was a co-founder of the Natural Resources Defense Council, an environmental group, as a contradiction. Emissions of carbon dioxide

"Our research shows that emissions of carbon dioxide from the three coal-fired plants that Mission is building in Mexico, Australia, and Indonesia will generate three to four times as much greenhouse gases as SCE claims to be saving in Southern California, says Dan Berman, an energy analyst and visiting scholar at the University of California at Berkeley, referring to figures from a recent Greenpeace report that he helped write. "They are just trying to create a green image."

Mr. Reed responds: "We are very concerned about the environment and always have been." As for the plant in Mexico, he said, "Our particulate-control devices are 99.3 percent effective. We are using low-sulfur coal, we are installing monitoring wells to protect the ground water, we are using impervious liners in our ash-disposal and coal-handling areas, and we are using stack-emission monitors."

Reed said air modeling done by Mission Energy shows that Carbon II will have little impact on Big Bend or other parks. "We are not planning on using scrubbers on the plant because we think there are other ways to do it cheaper."

Reed dismisses criticism of Mission Energy for its involvement in the project: "This plant is being built by CFE. Mission is not building it. CFE is responsible for all the engineering and construction. At this time, we do not have any control over those activities. This plant will be built whether Mission is involved or not."

EPA and environmental officials are hopeful that some solution can be worked out on Carbon II. They say Mission Energy and its partners will agree to a process reducing pollutants from the plant. "I think we can work out the problems at Carbon II, Yarbrough says.

The officials are less confident that changes will occur at Carbon I. Unlike Mission Energy, which can be pressured by American officials and environmental groups, CFE operates under Mexican authority, and EPA officials say the plant complies with Mexican law.

Meanwhile, Ms. Kelly and others seek ways to address the issue through the courts. Thus far, they have found few alternatives. In a report on the Carbon II issue, Kelly wrote that legal remedies are "unlikely to be an effective substitute for a strong framework that requires government action to resolve the problem."

Greenpeace and the Environmental Defense Fund also have been lobbying the World Bank and the International Finance Corporation. They want the IFC to force Mission Energy to install scrubbers or convert to natural gas. Cameron Duncan, energy analyst at Greenpeace in Washington, says if the IFC funds the project, it will be "another case where the World Bank will invest in a plant and subsidize a producer of dirty energy."

While environmentalists search for ways to force a change in direction, Mission Energy is forging ahead. Reed acknowledges that Mission Energy's involvement has become a focal point of the NAFTA debate. But he sees their involvement as positive. "If we are a partner in the plant, we can bring our expertise to help this plant run more efficiently and more cleanly. Without us, that isn't going to happen. We are not the bad guy."