22/12/25
Viewpoint: CSAPR sentiment bearish despite coal use
Viewpoint: CSAPR sentiment bearish despite coal use
Houston, 22 December (Argus) — Expectations for lower prices is likely to
persist in the federal Cross-State Air Pollution Rule (CSAPR) allowance markets
next year as they remain oversupplied, even with higher levels of coal-fired
generation. The seasonal NOx markets have been more active this year compared to
2024, when prices essentially flatlined due to regulatory and legal uncertainty
brought about by a barrage of lawsuits filed against the US Environmental
Protection Agency (EPA) for its "good neighbor" plan. That plan, which the
agency finalized in 2023 under former president Joe Biden, sought to help
downwind states meet the 2015 national air quality standards for ozone. The plan
imposes more stringent ozone season NOx caps for power plants in more than 20
upwind states, as well as setting new limits on some industrial facilities. But
the plan is now essentially defunct after the US Supreme Court halted its
implementation in June 2024. This led the EPA to return to less-rigorous NOx
emissions limits tied to older ozone standards and reshuffle the participating
states into the Group 2 and "expanded" Group 2 markets. Argus launched its
assessment of the latter in February 2025. EPA said in March it intends to
reconsider the good neighbor plan in order to give states more freedom in
developing their own ozone reduction plans. The announcement led to the US
District of Columbia Circuit Court of Appeals pausing a lawsuit challenging the
legality of the good neighbor plan until the agency completes its
reconsideration, and which could culminate in new regulations by fall 2026. But
those developments did little to move the seasonal NOx markets, which have
already been sluggish due to oversupply and weak compliance demand, leading to
more dramatic price fluctuations when trades do occur. Argus has assessed Group
2 allowances at $875/short ton (st) since 1 December and expanded Group 2
allowances at $850/st since 24 October. It is unclear how US president Donald
Trump's current hostility towards environmental regulations will affect the
administration's attitude towards the existing CSAPR allowance trading markets,
but it seems likely that they are here to stay. The EPA likely is "digging into
the air transport modeling that they have to understand what their options are,"
and which could potentially echo its determination during Trump's first term
that states had adequately addressed downwind pollution, said Carrie Jenks,
executive director of Harvard Law School's Environmental and Energy Law Program.
"The EPA is committed to advancing cooperative federalism and working with
states on state implementation plans (SIPs) to provide clean air for all
Americans," the agency said in December. But extensive case law suggests that
the EPA has little room to give states more power to manage emissions as they
see fit. Both the DC Circuit Court and the US Supreme Court have made it clear
that the EPA must intervene if a state does not sufficiently lower its
emissions, Jenks said. "So the EPA's hands, regardless of who's in the White
House, are really tied," she said. As a result, the EPA will likely try to
prolong the issue by giving states more time to draw up their own
ozone-reduction plans. The debates over those plans could revolve around how the
modeling of emissions is conducted and interpreted. Even if that modeling is
challenged in the courts, it can take years for litigation to get resolved. More
coal, more emissions Despite the continued dearth of activity in the seasonal
NOx markets, increases in coal-fired generation, a significant source of NOx and
SO2 emissions, have buoyed the outlook in those markets, heightening
expectations for higher emissions. During the past year, stronger power demand
and higher natural gas prices have allowed coal to take a larger market share,
which has resulted in increased coal-fired power in grids that serve states
covered by CSAPR. But NOx emissions during this year's ozone season, which ran
from May through September, were lower than expected, according to market
participants. Cumulative emissions in the Group 2 and expanded Group 2 markets
rose by just 1pc and 4.2pc, respectively, and remained well below their overall
limits. It was likely more cost-effective for power plants to run their NOx
controls than to purchase or surrender additional allowances for compliance.
Still, given the Trump administration's pro-coal agenda, it remains to be seen
for how long increases in coal generation will continue and to what extent that
will affect the CSAPR markets. Conversations over ballooning data center demand
have also bled into the seasonal NOx markets as the Trump administration seeks
to leverage coal to power that boom. There are currently a lot of moving parts
that make it difficult to make predictions, including how competitive coal is
compared to other energy sources such as renewables, where data centers get
built, their demand flexibility, and the federal and state regulatory landscapes
in the coming years, Jenks said. By Ida Balakrishna Send comments and request
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