UPDATE 4-U.S. EPA plans to tighten Bush-era smog limits

* Limits would be tougher than Bush administration's

* Would hit coal-fired plants, ships, locomotives hardest

* Greens say Obama's EPA following advice of scientists (Recasts, updates with Texas governor and American Lung Association comments)

By Timothy Gardner

WASHINGTON, Jan 7 (Reuters) - U.S. environmental regulators on Thursday proposed tougher limits on smog than the Bush administration required, which would cost polluters up to $90 billion but save Americans a similar amount on health bills.

Industry groups blasted the proposal, which will undergo 60 days of public comment before a final decision is reached in August. But the move won praise from environmental groups who had criticized the Bush administration for setting smog standards in 2008 that were looser than government scientists had recommended.

The Environmental Protection Agency proposed to limit ground-level ozone, or smog, to between 60 and 70 parts per billion measured over eight hours. In 2008 the EPA set the level at 75 ppb.

The tighter standards would require factories and oil, gas and power companies to cut emissions of nitrogen oxides and other chemicals called volatile organic compounds. Smog forms when those react with sunlight.

"Coal-burning power plants are the 800-pound gorilla in the room," John Walke, a clean air lawyer at the Natural Resources Defense Council, said about the industry that could get hit hardest. He said airplanes, ships, locomotives and off-road vehicles would also be targeted, perhaps more than automobiles, which have had to cut pollution since the 1970s.

The EPA, which signaled in September it would revise the standard, said the move would cost $19 billion to $90 billion to implement. But it said it would save $14 billion to $100 billion from healthcare bills for asthma, lung damage, and other diseases as well as lost work costs.

Pat Hemlepp, a spokesman at the American Electric Power Co Inc (AEP.N) in Columbus, Ohio, one of the top U.S. power generators, said industry has already worked to reduce nitrogen oxide emissions.

He said AEP would participate in the comment period for the proposed rule. If the rule takes effect, he said the company would work on a plan with states, which monitor pollution and are largely responsible for pushing industry to comply with the federal standards.

Environmentalists said the move shows the Obama administration is willing to follow recommendations of the EPA's science advisors, which they called a change from the Bush administration.

Frank O'Donnell, president of the nonprofit Clean Air Watch, said the proposal was a "breath of fresh air."

"If the EPA follows through, it will mean significantly cleaner air and better health protection," he added.

INDUSTRY SAYS ALREADY SPENT BILLIONS

Big industries said they have already spent billions to clean up emissions.

The American Petroleum Institute said the proposal "lacks scientific justification," adding the oil and natural gas industry has invested more than $175 billion toward improving environmental performance.

Texas Governor Rick Perry said Obama's clean air goals, including cap-and-trade on greenhouse gases and smog rules, would lead to the loss of hundreds of thousands of Texas jobs, "while doing nothing more to protect human health." His state is home to a large number of oil and coal plants.

Charles Connor, president and chief executive of the American Lung Association, said EPA should enact the tighter rule so fewer children would go to emergency rooms for asthma and fewer adults with lung disease would die from breathing polluted air. His group had sued EPA over its 2008 decision. (Additional reporting by Anna Driver in Houston; Editing by David Gregorio)