DNR Mercury Rules (Part I)

Last revised: Sept. 25, 2001

• DNR's Draft Mercury Rule

• Petition for Rulemaking

• Positions of Interested Parties

• Implications of Wisconsin's 2001 Energy Policy

• EPA's Mercury Efforts

New! See Hamilton Consulting Group Issue Brief - DNR Mercury Rule (Part II) for details on DNR advisory committees, public information briefings and hearings, PSC mercury docket and new DNR mercury fish advisories.

Synopsis

On December 6, 2000, the Natural Resources Board adopted DNR staff recommendations to proceed with mercury rulemaking. The action was in response to a May 18, 2000 petition for rulemaking by various environmental and conservation groups to address mercury air deposition into the state's waters.

On June 6, 2001, DNR released its draft mercury rule package. Key mandates include a phased mercury emission reduction requirement on utilities and a mercury emission cap on other emission sources. At its June 27 meeting in Kenosha, the Natural Resources Board gave DNR staff authority to take the draft rule out to hearing.

 Also in June 2001, Governor McCallum released his State of Wisconsin 2001 Energy Policy. The energy policy includes a series of specific recommendations, including a directive to DNR, Wisconsin Public Service Commission (PSC), and the Department of Administration (DOA) to jointly study the effects of proposed mercury regulations on the existing coal-produced electric generation capacity.

In a related development, EPA released its long-awaited regulatory determination on mercury on December 14, 2000. EPA will propose regulations by December 15, 2003 and issue final regulations by December 15, 2004. A key industry position is that any DNR mercury rule must be reconciled with expected EPA regulations.

DNR's Draft Mercury Rule

Background. Since December 2000, DNR has drafted their proposal behind closed doors, with limited industry input. In April 2001, interested groups were briefed on key aspects of the draft rule. Surprised by the severity of the proposal, industry requested modifications prior to the rule being sent out for public hearing.

Finally, on June 6, 2001, DNR released its draft mercury rule package. The core mandates remained - DNR made no changes to their initial proposal. The mercury reductions proposed for major utilities are 30 percent (Year 5), 50 percent (Year 10), and 90 percent (Year 15). Mercury emission caps would be set for other sources. A summary of the proposal is provided below, as well as in the DNR mercury rule fact sheet.

In an effort to address the lack of input from stakeholders, DNR committed to include alternatives proposed by various groups as part of the rule package going out to public hearing. Industry alternatives include opting for a voluntary program pending EPA's rulemaking efforts. Other options offered by industry include reduced reduction levels for utilities and removal of the caps on other sources.

Major Utilities

Definition of Major Utility. There are two criterions that must be met for sources to be regulated as a "major utility." First, the source must meet the definition of a major utility under Wisconsin's acid rain program. That definition refers to a Class A utility, as defined under s.199.03 (4), which generates electricity or an electrical cooperative association organized under ch. 185 . . ." Second, the utility must emit 100 pounds of mercury system-wide (all of its facilities in Wisconsin) for each of the baseline years.

Based on that criteria, four utilities would have to meet DNR's reduction mandates - Wisconsin Electric, Alliant Energy, Wisconsin Public Service Corp., and Dairyland Power.

Reduction Levels & Deadlines. Major utilities must reduce system-wide baseline emissions according to the following schedule: 

• 5 years after effective date - 30 percent

• 10 years after effective date - 50 percent

• 15 years after effective date - 90 percent

In addition to meeting reduction targets, utilities cannot exceed their baseline emission levels. This cap on utility emissions takes effect 4 years after the rule's effective date.

Baselines. DNR proposes the default baseline years of 1998-2000. Alternative baseline years can be used if DNR determines 1998-2000 is not representative of the utilities normal operations.

Generally, baselines emissions are calculated by subtracting the mercury removed by air pollution control equipment from the mass mercury content of the fuel consumed by the utilities. The mercury removed by air pollution controls would include that mercury removed by both emission controls and through the combustion process (i.e., mercury in fly and bottom ash is considered mercury removed by air pollution controls). Thus, there will be no credits toward the reduction mandates for any mercury reductions accomplished during the baseline years.

Compliance Alternatives. DNR would allow utilities to use certified emission reductions from a mercury-containing product reduction project or a pollution reduction project performed by another person. (See below) However, no more than 25 percent of the reduction mandates can be met through mercury product projects. A 25 percent cap is also placed on credits from pollution reduction projects.

Variances. Utilities can apply for variances to the reduction mandates consistent with the existing acid rain program. The draft rule would allow DNR to set alternative reduction levels or schedule, or both, if DNR, in consultation with the PSC, finds one of the following conditions preclude the utility from meeting the reduction mandates:

• A major electrical supply emergency within or outside Wisconsin affects the utility

• A major fuel supply disruption affects the utility

• An unanticipated disruption in the operation of a fossil fuel unit at the utility

• The occurrence of an uncontrollable event not anticipated in the required compliance plan

Variances are also allowed if DNR determines the reduction mandates are technologically or economically infeasible. Extensions to deadlines would be allowed to complete installation and place into operation control technology needed to achieve compliance.

Major Stationary Source

Definition of Major Stationary Source. DNR proposes to define a "major stationary source" as any stationary source that emits 10 pounds or more in each of the baseline years (1998-2000). Under this concept, units such as individual boilers at a facility must be aggregated to determine if the threshold is breached.

Like for utilities (see above), baseline levels for combustion units are calculated by subtracting the mercury mass removed by air pollution control equipment from the mercury mass in the fuel. Different emission calculation protocol is required for process units.

Based on this threshold, DNR has made a preliminary determination that 19 facilities would be regulated as major stationary sources:

Caps on Major Stationary Sources. Major stationary sources will not be required to reduce emission, but instead, be prohibited from exceeding the average annual emissions for the three-year baseline. Sources exceeding this cap must obtain certified reduction credits sufficient to "correct" the exceedence.

Baselines for Existing Mercury Emission Sources

Sources below the 1998-2000 10-pound threshold are brought into the program once it exceeds the 10-pound threshold for each of 3 consecutive years after 1998. In March of the year after the third year breach, the source must submit emission baseline calculations. By the end of that year, DNR will provide the final baseline determinations, which set the cap for the next year. For example, if a source exceeds 10 pounds in 2000, 2001, and 2002, the baseline is determined in 2003, with the cap in effect for 2004.

Construction Ban/Offset Requirements

One of the more severe aspects of the rule proposal is the construction/modification ban on any new mercury sources over 10 pounds per year. This ban takes affect January 1 of the 4th year after the effective date of the rule.

The construction ban can be avoided if the emissions from the new or modified source are offset at a ratio of 1.5 to 1.0. That is, if a new/modified source proposes to emit 10 pounds, it must somehow find 15 pounds of reductions from other sources.

Certifying Emission Reductions

For the purpose of meeting offset, baseline caps, and reduction mandates, DNR will establish registry of certified emission reductions. Any reductions required by local, state, or federal regulations cannot be certified or otherwise used by sources subject to the rule.

Mercury-containing Products Reduction Projects. Beginning 3 years after the effective date of the rule, DNR may certify mercury emission reductions from mercury-containing products reduction projects. Only those projects that propose the collection of 50 pounds of mercury or more annually will be considered by DNR.

Pollution Reduction Projects. DNR may certify mercury emission reductions from pollution reduction projects, including reductions resulting from shutting down or curtailing production or operating hours. Shutdown or curtailment credits can only be certified if the source notifies DNR prior to the shutdown or curtailment.

In the draft rule, DNR proposes to evaluate the new rule no later than 6 years after it becomes effective. The report will include:

• An evaluation in light of electric reliability, scientific and technology developments, multi-pollutant approaches and federal regulatory activity.

• An assessment of the impact of the compliance alternatives on mercury in locally affected water bodies.

• An evaluation of whether the 90 percent reduction mandates are technologically achievable.

• Recommendations for rule revisions based on findings of the evaluation.

An updated report would be submitted to the Natural Resources Board within 11 years of the rule's effective date.

An additional report would be required once EPA proposes its mercury reduction rule, which is currently scheduled for December 15, 2003. This report, due 6 months after EPA publishes its proposal, must compare the federal rule with DNR's rule, and include recommendations for revisions or other actions. A similar report is due 3 months after the promulgation of the EPA rule, which is currently scheduled on or before December 15, 2004.(New! An amendment to the above report provisions was adopted at the June 27 Board meeting.)

The Petition for Rulemaking

The petition for mercury rules was filed under protocol contained in Wisconsin's Administrative Procedures Act (Wis. Chap. 227), which allows groups or 5 or more individuals to petition an agency "requesting it to promulgate a rule." The petitioners included environmental groups, fishing and conservation groups, and four legislators, including the lead authors on last session's mercury legislation, Sen. Burke and Rep. Kaufert.

Initial Petition

The initial May 18, 2000 petition requests a rule to create "a comprehensive program in the DNR for addressing mercury in the environment." The petitioners ask that this program address the following:

• Mercury deposition and monitoring activities

• Mercury research

• Public information and education

• Technical assistance for stationary sources

• Cooperative mercury reduction activities with neighboring states and the federal government

• Mercury reduction from small sources

• Long-term storage issues

• Releases from coal ash and other solid waste streams

Specific mandates called for include:

• 90% reductions by 2015 from utility boilers, incinerators, cholor-alkali plants, and other sources as determined by DNR.

• Interim reductions, including at least 25% by 2006.

• A cap on 1999 emissions from all existing sources, and a 150% offset requirement for new or modified sources.

Amended Petition

DNR staff initially briefed the Natural Resources Board on the environmental groups' mercury petition at the Board's September 27, 2000 meeting in Ashland. Documents presented included a September 18, 2000 amended petition. The amended petition requests an accelerated reduction schedule (90% by 2010 instead of 2015).

Board's December Action

At the December 6, 2000 meeting of the Natural Resources Board, DNR staff recommended that the Board grant the petition and direct staff to develop proposed mercury rules. In developing the rules, DNR recommended that it include the following provisions:

• Percentage reductions and a phased schedule for achieving the reductions.

• Methodology for determining baseline emissions levels.

• Emissions trading and banking system.

• Alternative compliance options, such as projects that achieve mercury emission reductions from sources not covered by the rules.

After the public testimony, the Board approved DNR's recommendations by unanimous vote. Although the Board requested certain information, they attached no conditions on their approval. DNR staff immediately issued a press release touting what they called "a historic move expected to influence national policy."

Industry's Positions

From industry's perspective, a fundamental flaw with the proposal is DNR's failure to address industry and policymakers' concerns that Wisconsin not be punished when EPA promulgates its mercury rules. Another weakness, according to industry, is the inability of DNR to show that the costly mandates will have any meaningful impact on Wisconsin mercury fish advisories. Industry also argues that the rule as drafted has adverse energy policy implications.

Wisconsin Utilities Association

In a December 1, 2000 letter to the Natural Resources Board, the Wisconsin Utilities Association (WUA) and Dairyland Power Cooperative committed to work cooperatively with Wisconsin DNR and EPA to develop a mercury program for Wisconsin. Yet, key parameters outlined in that letter included:

• A stepped reduction process similar in timing and reduction levels to the mercury portion of the DNR Wisconsin Electric Project XL proposal, which generally requires reductions of 10 and then 40 percent in 2005 and 2010, respectively.

• Recognition that any mercury control program can not cause reliability problems, as determined by a third party (e.g. the Public Service Commission of Wisconsin), and that mercury not be used to drive the fuel mix more toward natural gas.

• Inclusion of market-based components, including emission trading and averaging, and inter-sector trading to meet reductions requirements.

Wisconsin Manufacturers & Commerce

In their December 1, 2000 letter to the Board, Wisconsin Manufacturers & Commerce (WMC) noted additional concerns regarding the petition:

• Potential impact of proposed regulations on electric reliability and rates.

• Ongoing studies should be completed prior to imposition of new regulations.

• Mercury reductions only in Wisconsin will not impact Fish Advisories.

• DNR has questionable authority to promulgate proposed regulations.

Despite these concerns, WMC stated it would not object to DNR going forward with rule making so long as DNR does not target the manufacturing sector and the PSC is involved in the rule development to assure reliability and costs are addressed.

Both WUA and WMC's expectations for a more reasonable rule were dashed with the 90 percent reduction mandates and caps on industrial sources contained in the draft rule. The draft rule raised the stakes, and the level of industry opposition.

In a June 20, 2001 letter  to DNR, WMC requested the draft rule package going out to hearing include various alternatives. 

WMC suggested the following alternates in lieu of the proposed mandates:

• Pending resolution of important scientific and policy issues, implement voluntary, cost-effective mercury use reduction programs.

• Focus on voluntary measures pending EPA's development of its mercury reduction strategy. Upon promulgation of EPA's rules, develop a state mercury program consistent with and no more stringent to the federal program.

• Revised its current mercury proposal in a way that conditions its mandates on the outcome of EPA's regulation, including an abeyance of any mandates inconsistent or more stringent than the federal program pending further public comments on such requirements in light of the federal program.

Other alternatives relate to specific issues raised by the proposal, including: 

• Clarify that the state-only provisions in the proposed rule do not apply to sources subject to a federal mercury emission standard.

• Eliminate the caps and other requirements for major stationary sources, or substantially increase the cap level and establish caps on a unit rather than facility basis.

• Eliminate the offset requirements for new sources or replace the offset requirement for new sources with a technology-based approach.

• Eliminate the 25 percent restrictions use of mercury product and pollution reduction offsets.

The Natural Resources Board approved the inclusion of these and other alternatives at the June 27, 2001 Board hearing granting DNR authority to take the rule to hearing.

Related Developments

State Energy Policy

On June 20, 2001, Governor McCallum released his State of Wisconsin 2001 Energy Policy. The energy policy includes a series of specific recommendations, including a directive that DNR, Wisconsin Public Service Commission (PSC), and the Department of Administration (DOA) jointly study the effects of proposed mercury regulations on the existing coal-produced electric generation capacity. It is the Governor's goal that this study leads to "a policy that combines sound economics with environmental protection."

The concern noted in the report is, "Some people fear that overly restrictive or poorly designed [mercury] regulations could severely disrupt the ability of Wisconsin power producers to generate electricity at acceptable rates." Beyond impacts on rates, there are concerns that the rules, if promulgated as proposed, would severely impact electric reliability.

As noted above, WMC and other groups believe the construction ban/offset requirement could in effect preclude new coal plants from being built in Wisconsin. This would put a serious hurdle in front of the Governor's goal that "Wisconsin will take steps to assure the addition of at least 6,300 MW of additional electric capacity by 2016, in addition to that mandated by 1999 Wisconsin Act 9."

From a broader perspective, the Governor also made the following recommendation:

"The PSC should assess proposed state agency rules to determine their impact on the state's energy policies. If the impact is significant, the PSC should prepare and provide an energy impact statement to the proposing agency. The energy impact statement should also be available to the legislature as it considers the proposed rule."

This recommendation was contained in the Governor's budget, and may become law if incorporated in the final budget package. In any event, the interplay (and potential conflicts) between energy and environmental policies will change the mercury debate over the summer of 2001.

EPA Developments

EPA's Mercury Rule

On December 14, 2000, EPA released its long-awaited regulatory determination on mercury. In that document is set forth the rationale behind EPA's decision to regulate emissions of mercury and other air toxics from coal- and oil-fired electric utility steam generating units (power plants). EPA also announced its finding that such regulation will not be necessary for units fueled by natural gas - with the exception of combustion turbines. EPA will propose regulations by December 15, 2003 and issue final regulations by December 15, 2004.

As noted above, a key industry position was that any DNR mercury rule must reconcile expected EPA regulations. The concern is that DNR's proposal will create situations where compliance with the state mandates will not be considered acceptable under EPA's program. For example, EPA's expected mercury program will in all likelihood not recognize trading as a compliance option, a fundamental difference between the state and federal programs.

In an apparent effort to address this concern, DNR will reevaluate its mercury program once EPA promulgates its mercury rules. However, many believe the decisions on building electric generation plants, and whether to include coal in the mix, need to be made prior to any reconciliation that could occur as a result of DNR's evaluation.

Existing MACT

Industry believes that sources covered by federal MACT standards (e.g., municipal waste incinerator MACT) would be exempt from the state mercury rule. They cite Wisconsin law, §285.27(2)(a), Stats., which provides the following:

"If an emission standard for a hazardous air contaminant is promulgated under section 112 of the federal clean air act, the department shall promulgate by rule a similar standard but this standard may not be more restrictive in terms of emission limitations than the federal standard . . . "

DNR interprets this provision as allowing the DNR mercury rules to be more stringent than federal MACT standards for mercury. Apparently, DNR concludes that the above restriction does not apply because the emission limitations in the mercury rule are intended to address water quality concerns rather than air quality. Based on this interpretation, DNR's proposal targets several sources subject to existing federal mercury standards.