Yesterday we took a brief look at the U.S. power sector. In sum, you’ve got a bunch of old coal and nuclear power plants built in the ’70s and nearing the end of their useful lives, some old but hearty hydro in the West, a ton of new natural gas plants, and renewables coming on strong. Aging coal plants are responsible for the vast bulk of the power sector’s pollution — greenhouse gases, SOX and NOX, particulates (smog), mercury, combustion ash, you name it. The power sector’s pollution problem is largely the problem of old coal plants.

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What’s the deal with that? Why are those plants still so filthy? Answering that question requires a brief (but wildly entertaining!) foray into policy history.

In 1977, a collection of major amendments were added to the Clean Air Act. Among other things, they established a permitting program to insure that every new plant meets the air quality standards established in 1970. However, in a fateful policy compromise, existing power plants were exempted from the permit program — they were “grandfathered.” The idea was that they could just get their permits whenever it came time to make “major modifications,” which they’d have to do eventually, right?

Except, um, no. Think about it for a moment: You’re an old, dirty coal power plant. Your capital costs are paid off. You’re cranking out cheap power and making money hand over fist. Now EPA tells you that if you update or upgrade, you’re going to have to install expensive pollution scrubbers — new capital costs, increased operating costs, and reduced competitive advantage. What are you going to do? Naturally you’re going to avoid “major modifications” like the plague!

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Sure enough, utilities resisted upgrading old plants to more efficient technology for fear of triggering new permit requirements. Oh how they resisted! To this day, only about half the U.S. coal fleet has pollution scrubbers installed. When utilities did modify their plants, they went to court to argue that the modifications weren’t “major” (a word that was, helpfully, never clearly defined in statute). And of course they fought like hell to preserve grandfathering, since it was in effect an enormous subsidy to their oldest, dirtiest plants.

In other words, the grandfathering of old power plants created a massive incentive for inefficiency, rent-seeking, and litigation. (For more, see: “The Real Problem with New Source Review” [PDF], by Shi-Ling Hsu.)

The battle between utilities and environmentalists over old power plants has been heated, vicious, and looong. It has consumed an enormous amount of the environmental movement’s time and effort. It has shaped the careers of many individuals now in green group leadership, which in turn shapes the way they approach new pollution challenges.

So what’s happening with those old coal plants now? To understand what’s going on at EPA, you have to keep in mind what’s happened for the last eight years — namely, nothing. Bush came into office in 2000 and immediately dismissed the lawsuits the Clinton administration had filed against a raft of old power plants. For the next eight years, coal utilities were effectively allowed to regulate themselves; industry representatives staffed and administered EPA air programs. Relentless effort was made to weaken the law and enforcement was utterly gutted.

Nonetheless, Congress designed the Clean Air Act to be a living document. EPA is instructed to periodically review the best science and determine if new air pollutants have come to light or the dangers of existing pollutants are greater than previously understood. That responsibility was utterly disregarded under Bush, but science has, in fact, progressed quite a bit in the intervening years! By now, just about every Clean Air Act rule is due for major overhaul.

And that is what Lisa Jackson’s EPA is doing as we speak: updating a whole panoply of Clean Air Act and other pollution standards. That’s what has coal utilities terrified. More on that in the next post.