Foley & Lardner LLP

14 May 2010
Legal News: Environmental

Tinkering, Tailoring: EPA Issues New Rule for Greenhouse Gases Under Clean Air Act

On May 13, 2010, the day after Sens. Kerry (D-Mass.) and Lieberman (D-Conn.) released a draft of a new Senate global climate bill, EPA issued a final rule to “tailor” Clean Air Act (CAA) requirements for greenhouse-gas (GHG) emissions. The new tailoring rule affects the scope of two CAA programs:

  1. the Prevention of Significant Deterioration (PSD) program for pre-construction and pre-modification review, and
  2. the Title V permitting program.

EPA had issued its proposed tailoring rule on September 30, 2009, the same day Sens. Boxer (D-Calif.) and Kerry introduced their comprehensive global climate bill in the Senate, which has gone nowhere. Just as the new draft Kerry/Lieberman bill would cut back significantly on the 2009 Boxer/Kerry bill, EPA’s final tailoring rule is much more lenient in scope and applicability than the tailoring rule EPA proposed in 2009. And the new final tailoring rule is orders of magnitude more lenient in scope and applicability than the terms of the CAA would appear to require. It is the terms of the CAA, after all, that are being tailored.

The basics of EPA’s new final tailoring rule are summarized as follows, with a comparison to the 2009 proposed rule and the relevant CAA provisions in brackets where pertinent.

Starting January 2, 2011 Through June 30, 2011 — Step 1

Only new constructions/modifications already subject to PSD on the basis of other pollutants would be subject to PSD for GHG emissions. [EPA’s 2009 proposed tailoring rule did not provide a phase-in period limited to projects already subject to PSD.]

For these permits, only GHG increases of 75,000 tons per year (tpy) or more of total GHG, on a CO2e basis,1 would trigger the need to determine the Best Available Control Technology (BACT) for GHG emissions. [EPA’s 2009 proposed tailoring rule requested comment on a range of 10,000 –25,000 tpy increase as a “modification” trigger.]

Only sources currently subject to the Title V permit program on the basis of other pollutants would be subject to Title V requirements for GHGs.

After June 30, 2011 — Step 2

PSD permitting requirements will apply to any new source with GHG emissions of at least 100,000 tpy. [EPA’s 2009 proposed tailoring rule specified 25,000 tons. The CAA specifies 100 or 250 tpy, depending upon the type of source.

Existing source modifications that increase GHG emissions by at least 75,000 tpy will be subject to PSD. [EPA’s 2009 proposed tailoring rule requested comment on a range of 10,000 – 25,000 tpy increase.]

Sources with GHG emissions of at least 100,000 tpy will be subject to Title V permitting requirements. [EPA’s 2009 proposed tailoring rule specified 25,000 tons. The CAA specifies 100 tpy.]

EPA says it will issue new rules for a Step 3 by July 1, 2012. That action will consider whether and how to bring smaller sources into the system and consider “streamlining” options to reduce permitting burdens. EPA states that it will not require permits for smaller sources until at least April 30, 2016.

What About BACT?

The most immediate impact of the new rules, as shown above, will be that many Step 1 sources seeking PSD permits will need to have a BACT determination beginning just a few months from now. BACT for GHGs is a totally new ball game, and there is very little history or experience that appears relevant at this time. The same problem will hit many more sources beginning July 1, 2011.

EPA recognizes this problem in the preamble to its new final rule and says it is working on it. EPA says that it hopes to issue, “by the end of 2010,” technical and policy guidance to support permitting agencies in their GHG BACT determinations. EPA says it will do this “through stakeholder input,” and that EPA is already responding to a “suite of recommendations” from its CAA Advisory Committee (CAAAC) on this subject.

In fact, the next meeting of CAAAC’s Climate Change Work Group will be May 26, 2010. The Work Group is undertaking case studies of early applications of GHG BACT involving coal fired power plants, refineries, pulp and paper mills, and auto manufacturing facilities. The group will also be looking at “innovative technology” for GHGs within the BACT process.

EPA’s Legal Dilemma

EPA’s “tailoring” — which might also be fairly characterized as “tinkering” with statutory language — is prompted by a legal dilemma. In Massachusetts v. EPA (549 U.S. 497 (2007), the U.S. Supreme Court ruled that GHGs are air pollutants under the CAA and that EPA was accordingly required to make a finding on whether GHGs “endanger” public health and welfare. The Obama EPA has now made its affirmative finding of “endangerment” and on April 1, 2010 issued final motor vehicle GHG regulations. By virtue of these actions, all sorts of other requirements — including the duty to regulate GHGs under the PSD and Title V programs — have now been triggered.

Virtually all observers agree that the current version of the CAA is not well-tailored to regulating GHG emissions, and that major implementation headaches and impracticalities would be triggered — the most significant being the PSD and Title V programs subject to EPA’s new tailoring rule. While the Obama administration and others have strongly pushed for new legislation from Congress that could obviate these problems, the prospects for new comprehensive GHG legislation this year are highly uncertain. In the meantime, the regulatory train has been moving under the current CAA, and EPA must squarely face the PSD and Title V problems associated with regulating GHGs.

Tailoring of CAA Terms to Relieve Headaches and Impracticalities

For PSD, the CAA specifies that any new source of air pollution emissions will be considered a “major” source if it emits (depending upon the type of source) either 100 or 250 tpy of pollutants regulated under the CAA. The CAA also specifies that generally, any air pollution source with emissions of 100 or more tpy must obtain a Title V permit that will incorporate into one document all of the myriad air pollution requirements to which the source is subject.

These numbers make sense for traditional pollutants such as SO2 and NOx, but EPA found in its 2009 tailoring proposal that implementing these statutory requirements in the GHG context would have mind-boggling consequences. EPA said that adherence to the statutory requirements specifying 100 and 250 tpy would put EPA and state agencies in a “paralyzing” bind, and create results that Congress could never have intended. EPA cited full regulatory coverage of schools, hospitals, small farms, and restaurants as examples.

EPA proposed 25,000 tpy threshold levels for both PSD and Title V under the assumption that this relief from the statutory terms of 100 and 250 tpy would be manageable for the states and EPA Regions in their permitting processes. EPA learned from the public comment process, however, that even these levels would present major implementation problems, and thus EPA raised the level to 100,000 tpy in its final rule.

EPA’s materials accompanying issuance of the new final rule include interesting graphics and charts comparing the "Burden Reductions" (http://bit.ly/asSHdY) on numbers of sources subjected to permitting. They also include a time-line graph of the new rule's "Permitting Steps" (http://bit.ly/ahZVvx).

Fulsome Legal Justification

Recognizing that it was proposing threshold numbers that deviated from the CAA’s terms by orders of magnitude, and recognizing the likelihood that such numbers would be challenged on judicial review, EPA’s 2009 proposed rulemaking preamble went to amazing lengths propounding supporting legal theories. Citing Supreme Court and other federal cases, EPA developed and explained avoidance of “absurd results” and “administrative necessity” grounds to support the deviations. EPA’s legal justification comprised 92 pages of the proposed rulemaking preamble.

In its new final rule preamble, recognizing it was issuing final numbers that deviated from the terms of the CAA to a much greater degree than even the proposed numbers, EPA goes to even more amazing lengths in propounding legal theories and responding to comments criticizing its departure from the statutory terms. EPA’s legal justification comprises 252 pages of the final rulemaking preamble (more than half of the 498 total pages of the preamble).

A “Train Wreck” Approaching?

Once the new final rule appears in the Federal Register (probably before the end of May 2010), parties will have 60 days to file judicial review petitions in the U.S. Court of Appeals for the District of Columbia (D.C. Circuit). If the D.C. Circuit were to rule that EPA has no authority to deviate from the statutory terms of 100 and 250 tpy, and EPA and the states are forced to implement PSD and Title V permitting at those levels, EPA, the states, schools, hospitals, small farms, and restaurants — to name only a few — face a train wreck of historic proportions.

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1 EPA has designated six common GHGs as components of a metric referred to as CO2e. The six are carbon dioxide (CO2), methane (CH4), nitrous oxide (N20), hydroflourocarbons (HFCs), perflourocarbons (PFCs), and sulfur hexafluoride (SF6).


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