March 10 (Bloomberg) -- The U.S. Environmental Protection Agency tightened limits on air pollution from power plants in 28 eastern states, one day after legislation with similar cuts for the entire U.S. stalled in the Senate.

The new regulation, the Clean Air Interstate Rule, reduces allowable emissions of sulfur dioxide, which causes acid rain, and nitrogen oxide, a cause of smog, the EPA said on its Web site. A second rule expected next week would for the first time regulate air emissions of mercury, which is believed to cause brain damage in children.

The rule ``will result in the largest pollution reductions and health benefits of any air rule in more than a decade,'' Steve Johnson, the acting EPA administrator, said in the statement.

The change in U.S. air pollution regulations is the biggest since creation of a program to control acid rain in the 1990 Clean Air Act amendments, the EPA said.

Environmental groups praised the rule as preferable to the legislation supported by President George Bush, which they say would weaken enforcement and increase pollution.

``EPA's action shows that legislation is unnecessary,'' Vickie Patton, senior attorney for lobbying group Environmental Defense, said in an interview. The 1990 amendments were challenged by utility groups and upheld twice in federal court, and this rule will as well, she said.

Pollution Credits

Power plant owners have already announced plans for more than $12 billion in new pollution control equipment in anticipation of the EPA rule. Prices for allowances to emit sulfur dioxide under the 1990 acid rain program more than doubled the past year as the new EPA rules approached completion, giving plant owners an incentive to add controls.

By reducing future emissions at coal-fired plants, generators can stockpile credits or sell them on the marketplace.

John McManus, vice president of environmental services at American Electric Power Co., the largest U.S. generator of electricity from coal, said the company is concerned about the cost of the rule. American Electric hasn't decided whether to sue to block implementation.

``Our experience is that any significant ruling will bring lawsuits,'' McManus said in an interview. ``We're comfortable that we can comply'' with the regulation.

The rule will reduce air pollution in steps over the next decade. By 2015, it will slash emissions of sulfur dioxide by more than 70 percent and nitrogen oxide by more than 60 percent, compared with 2003 levels, the EPA said.

Legislative Impasse

President Bush's proposed legislative changes to the Clean Air Act failed to pass a U.S. Senate committee yesterday, dealing the president a setback on a second-term initiative he describes as a top priority. Bush continues to push for legislation, said James Connaughton, chairman of the White House Council on Environmental Quality.

``We're positioned exactly as we were for Healthy Forests, where the administrative rules come first and Congress acts later,'' Connaughton said in an interview.

Eight Democrats and one Republican on the committee said the so-called Clear Skies bill would weaken existing regulations. They also objected because the legislation lacked requirements to cut carbon dioxide emissions, which many scientists believe to be a cause of global warming.

``Congress is debating the Clear Skies initiatives, but I'm going to act to get results,'' Bush told supporters in a speech on energy policy yesterday in Columbus, Ohio. Bush was referring to the EPA rules.

Industry-Backed Bill

Industry preferred the bill because it erased a requirement that generators update antipollution equipment when they expand or upgrade power plants. The EPA and environmental groups can sue operators that don't comply.

Lawsuits against companies that don't comply with the requirement will result in reduction of only 2 million tons of sulfur dioxide a year while the proposed legislation will cut emissions by 6 million to 9 million tons, Connaughton said.

Prices for sulfur dioxide allowances traded today at $675 per ton, down from a January high of $740 a ton, and more than double the $275 a ton in March last year, said Pete Zaborowsky, managing director of Evolution Markets, a White Plains, New York- based broker of emissions credits.

``We can't tell yet how the market will be affected by the ruling today,'' Zoborowsky said. ``The EPA still hasn't released final details.''

To contact the reporter on this story: Christopher Martin in Chicago at cmartin11@bloomberg.net.

Last Updated: March 10, 2005 17:23 EST