The State of New Hampshire has enacted new legislation, known as the Clean Power Act (the "Act"), to reduce emissions of four pollutants from existing fossil fuel burning steam electric power plants ("Affected Sources"). Citing "collateral benefits and economies of scale associated with reducing multiple pollutant emissions at the same time," the Act calls for reductions in emissions of sulfur dioxide ("SO2"), oxides of nitrogen ("NOx"), carbon dioxide ("CO2") and mercury. According to a press release from the Governor’s Office, the Act makes New Hampshire the first state "to legislatively require fossil-fuel power plants to reduce emissions" of the four pollutants.

The Act charges the Department of Environmental Services ("Department") with responsibility for implementing an integrated strategy for reducing emissions of these pollutants within specified annual caps "in a market-based fashion that allows trading and banking of emission reductions." The owners or operators of the Affected Sources are required to file a compliance plan within one year of the July 1, 2002 effective date of the Act, and are to be in compliance with the established annual caps by December 31, 2006. Compliance may be achieved by reducing emissions at the Affected Sources, "using compliance market-based approaches, or other methods acceptable to the [D]epartment."

The annual caps for each pollutant are to be allocated among the Affected Sources "based on the output of each Affected Source." As to SO2 and NOx, the Act specifies the applicable annual volume of emissions allowed. As to CO2, the Act specifies the applicable annual volume of emissions allowed through December 31, 2010, and requires the Department to recommend a lower cap for consideration by the legislature to take effect thereafter. With respect to mercury, determination of the applicable annual cap is deferred until after the U.S. Environmental Protection Agency establishes a Maximum Achievable Control Technology ("MACT") standard for mercury emissions from utility boilers, but no later than March 31, 2004, at which time the Department is to recommend an annual cap to the legislature. In the meantime, the owners and operators of each coal-burning Affected Source are required to test and assess their current mercury emissions. According to the Governor’s press release, the annual caps established in the Act amount to a 75 percent reduction in SO2 emissions, a 70 percent reduction in NOx emissions, and a reduction to 1990 levels of CO2 emissions.

The Act generally allows Affected Sources to use emissions allowances from "federal or regional trading and banking programs, or other programs acceptable to the Department," to comply with the established caps. Certain variations apply to each of the pollutants. For example, with respect to CO2 and mercury, early reductions may be banked for future use. With respect to NOx, allowances for emissions reductions achieved at certain specified Affected Sources can be applied to some of the other Affected Sources, but cannot be applied to emissions between May and September. With respect to SO2, Affected Sources are required to transfer all annual allocations provided under the federal acid rain program to the Department, which in turn will distribute such allocations to the Affected Sources in amounts that are equivalent to the annual cap. "In order to encourage reductions in upwind emissions and thereby provide greater benefit to air quality in New Hampshire," the Department will then provide an additional 0.20 allowance for SO2 for every 0.80 allowance purchased under the federal acid rain program that originates from within the "ozone transport region." Thus, the Act encourages Affected Sources to obtain SO2 allowances from other upwind sources. A ceiling applies to the total amount of allowances for SO2 that may be received by all of the Affected Sources, combined, in any given year.

The Act also includes incentives for investment in energy improvements. For any expenditures made for energy efficiency, new renewable energy projects, or conservation and load management, the Department is to provide emissions allowances equal to the amount of allowances that could have been purchased at market prices for such expenditures. To qualify for the additional allowances, the expenditures must, "to the greatest extent practicable, result in immediate, demonstrable energy improvements."

The Act does not apply to Affected Sources that have installed "qualifying repowering technology" or replacement units meeting certain pollution control criteria. Also, the Act is limited by its terms to existing power plants, and therefore would not apply to new power plants.