Uncertain Air Regulations - Part II

• By David E. Koch
• Mar 01, 2001

Utilities Drive Demand for Air Pollution Consulting/Equipment

Figure 1 summarizes time-series data on Requests for Proposals (RFPs) released by federal, state and local government agencies for air-related equipment and services.¹ As shown in the figure, government agencies are demanding monitoring equipment, as well as services related to air quality policy development, permitting and compliance. State and federal agencies are also contracting the services of environmental firms to conduct studies on ozone transport, emission inventory development and pollution control measure analyses. To a lesser extent, projects are also surfacing for greenhouse gas emission studies, landfill gas projects, and stack testing services.

In terms of contracts awarded, electric utilities are the strongest market for air quality-related services and equipment. A review of recent contract awards bears this out. Figure 2 illustrates the distribution of recent air-related contract awards, as reported in EnvironmentNOW^® News Service, by end use sector.

With 32 percent of the total number of contract awards, electric utility plant expansions and construction were responsible for the majority of air-related contract awards over the past six months. In demand were services related to plant design and construction, air pollution control technology installation and retrofits, as well as permitting and compliance services. Earlier this year, Babcock & Wilcox received a $40 million contract from Baltimore Gas and Electric Company to supply and retrofit SCR systems for NO_x emission control. Demand for air-related equipment and services is also progressing at a healthy pace in the pulp/paper sector, which accounted for nearly 20 percent of air-related contract awards over the past six months. Other popular end use markets are government agencies, various types of waste incineration, cement manufacturers, solid waste landfills, metals/mining operations and petroleum refineries.

As part of this research effort, individuals from environmental firms of all sizes were asked whether their clients were seeking only to comply with applicable air quality regulations in isolation, or whether clients were proactively seeking to go beyond compliance. Participants were in agreement that clients' demand for air-related services still reflects a desire to respond to each air regulation in isolation, and few clients are looking to go beyond compliance. Some participants are starting to "dabble in overall environmental compliance," although this type of service is not what most participants view as a growth market.

Craig Holbrook, Manager of Strategy and New Markets at Trinity Consultants noted an interesting trend in his company's current relationships with existing clients. His firm is evolving toward "business partnering arrangements in which Trinity forms solid business relationships with clients over the long-term." Trinity is currently pursuing a strategy of diversifying its air quality division to focus on services other than solely permitting activity, while still staying under the 'air umbrella.' "²

Interestingly, the majority of participants also noted that their companies' growth rates specific to air quality were on the rise over the past year. According to Gale Hoffnagle, a Vice President at TRC Environmental Corporation, in an interview conducted in March 2000, "air work was up 20 percent over the last fiscal year." Hoffnagle attributed this growth to a number of factors, including a decrease in the number of competitors in air quality "even compared with two years ago," and an increased demand for value added services. Hoffnagle believes that as the 1990 promulgation of the CAA Amendments moves further into the past, clients have developed the in-house expertise necessary for routine compliance activities, and are, instead, demanding the expertise of environmental firms for more complex issues related to strategic, value added services than ever before.

In terms of the outlook for air-related services and equipment, study participants predict low to stable growth over the near term. Growth is expected in markets created by EPA's NSR program, Title V permitting and MACT regulations. Among the study participants experiencing strong demand from the Title V operating permits program is Trinity Consultants. Holbrook admitted to being surprised at the high rate of growth his company has seen from Title V compliance work this year. According to Holbrook, the majority of work Trinity performs is related to permit modifications, although companies that failed to comply with Title V compliance are also now seeking Trinity's services to obtain the requisite permits. Holbrook predicts stable market growth, noting that the company's MACT-related work is expected to be particularly robust. Holbrook is also optimistic about Title V work, particularly for clients whose permits are up for renewal or clients who failed to obtain Title V permits.

Although the federal NAAQS for ozone and fine particulates remain mired in legal battles, future regulations seem certain as EPA moves forward on its CAA requirements. Jeffrey Smith, Executive Director of the Institute of Clean Air Companies, believes that the primary drivers in air quality markets over the near-term will be in the area of NO_x emission control measures, particularly in the eastern US. Specifically, Smith identified the NOx SIP call as the primary driver over the near term due to its wide coverage. Section 126 petitions are also coming to the forefront with EPA due to make determinations soon in additional eastern states, and according to Smith, "of course NSR as an enforcement tool" will also be a strong market driver over the near-term. Over a slightly longer term, Smith believes "there is considerable bipartisan support for a four-pollutant control strategy, the pollutants being NO_x, SO₂, mercury and CO₂."

Hoffnagle concurred with Smith that the NSR program will drive growth opportunities in air quality markets over the near term. The majority of NSR-related work is expected to be in the area of obtaining permits for new plants, in addition to work related to EPA's enforcement efforts. Many of TRC's clients in a variety of industries are becoming concerned about NSR compliance "before EPA turns its gun on them."

Increases in national and regional emission cap-and-trade programs in the US are also adding complexity and flexibility to the compliance behavior of regulated facilities, as well as driving the need for monitoring data for a variety of pollutants. EPA has already proposed a cap-and-trade program for the eastern US as a cost-effective method of meeting existing ozone standards. Regional cap-and-trade programs have already been implemented nationally for SO₂, NO_x and VOC emissions. EPA is also currently in the process of evaluating the feasibility of a cap-and-trade program for mercury control, and some analysts believe that a similar program is likely to be established for particulate matter.

Looking to the future, emissions of heavy metals, particularly mercury, in the US are also likely to come under increased scrutiny. A recent EPA report incriminated electric utilities as the major source of heavy metal emissions in the US. EPA is scheduled to make a determination on the regulation of mercury from coal-fired electric power plants by December 15, 2000.

Interestingly, study participants were unanimous on one point: climate change initiatives appear to be on a slow growth path. Although greenhouse gas control programs are slowly inching to the forefront of public consciousness and many large corporations are starting to incorporate proactive steps to reduce greenhouse gas emissions as part of their environmental stewardship programs, participants do not yet view this segment of the industry as a growth market.

On a final note, study participants were asked to score specific industry sectors in terms of their strength as a growth opportunity over the near term (5=high growth potential and 1=low growth potential). The results are summarized in Figure 3. Not surprisingly, chemical manufacturing and electric utilities topped the list, followed by the petroleum refining sector, electronics manufacturing and pharmaceutical manufacturing. Participants are closely watching upcoming regulations for new market opportunities, as the air quality segment proves itself to still be primarily dependent on regulations as demand drivers.