The Chesapeake Bay and the Control of NOx Emissions: A Policy Analysis

Nitrogen oxide emissions not only affect air quality but have recently been found to be an important source of nitrate pollution in the Chesapeake Bay. This analysis examines the costs, emissions, source specific and location-specific allocations of NOx emissions reductions and the ancillary ozone related health benefits under a range of policy scenarios. The paper includes analysis of three separate policies. The first is a detailed analysis of the effect on nitrate loadings to the Bay of command and control policies specified in the Clean Air Act and as part of the OTAG process. The second is a comparison of alternative scenarios for reducing NOx emissions that meet nitrate loading goals, with or without concern for reducing ozone concentrations and the health effects they cause. The third is a comparison of alternative approaches to allocate NOx emissions to meet NOx reduction and ozone exposure goals while capturing the ancillary effect on nitrate loadings. This last analysis focuses on the stake the Bay jurisdictions have in the outcome of negotiations over NOx trading programs being developed by EPA for reducing ozone in the Eastern U.S. With the primary focus on the Chesapeake Bay jurisdiction, all three analyses integrate the ancillary ozone benefits of policies to reduce nitrate pollution, including examination of how these ancillary benefits change under alternative meteorological episodes, and explore lower cost alternatives to current regulatory programs in both qualitative and quantitative terms. We find that the Chesapeake Bay benefits from efforts to reduce NOx emissions to meet the ambient air quality standard for ozone. Airborne NOx emission reductions slated to occur under the Clean Air Act in the Bay airshed will reduce nitrate loadings to the Bay by about 27 percent of the baseline airborne levels. The additional controls of NOx contemplated in what we term the OTAG scenario is estimated to result in an additional 20 percent reduction from this baseline. However, the paper's analysis of possible least cost options shows that the costs of obtaining such reductions can be significantly reduced by rearranging the allocation of emissions reductions to take advantage of source-type and locational considerations. In addition, we find that adding consideration of ancillary ozone-related health benefits to the picture does not alter any qualitative conclusions. Quantitatively, unless a link between ozone and mortality risk is assumed, the benefits are too small to affect the cost-saving allocations of NOx reductions. If the case for such a link can be made, the results change dramatically, with large overall increases in NOx reductions and a relative shift in controls to non-Bay states and utility sources. These specific effects are sensitive to the source-receptor coefficients linking NOx to ozone, however. Our analyses also suggest that the Bay jurisdictions have a stake in the outcome of the NOx trading debate -- that some trading designs can lead to better outcomes for these jurisdictions than others. Nevertheless, a common feature of cost-savings policies is that they both rearrange emissions reductions and, in the aggregate, reduce emissions less than a command and control system. Thus, some trading regimes result in significantly smaller loadings reductions (up to 25 percent smaller) than the command and control approach.