Ohio Environmental Law Blog : Ohio Environmental Lawyer & Attorney : Joseph Koncelik : Frantz Ward Law Firm : Environmental Regulation, Land Use, Compliance : Cleveland, Ohio

Today, Ohio EPA released its response to the federal court ruling which struck down the exemption from BAT for sources that emit less than 10 tons per year.  The memo makes clear that it supplants the February 2nd e-mail instructing staff to not issue air permits until the ruling was evaluated. 

There are few surprises in the memo.  It basically states sources will have to go back to case-by-case BAT evaluations.  This was what Senate Bill 265 was designed to eliminate.  Therefore, three years after passage of the bill the status quo remains. 

The memo also says Ohio EPA has supplied some information to U.S. EPA to support the rule exempting sources less than 10 tons per year.  However, U.S. EPA requested additional information which it could not supply due to staffing shortages.  The memo contains no discussion of what has been supplied or what additional information is going to be collected. 

The memo also points out that there may be instances when sources less than 10 tons per year have more stringent regulations than sources greater than 10 tons per year.  I don't anyone anticipated that outcome three years after passage of Senate Bill 265.

Also, notably absent is any discussion of the status of air permits that were issued over the last three years without BAT in accordance with the exemption. The memo only states that Ohio EPA has yet to make a decision as whether to go back and re-issue these permits.  Businesses holding these permits received no word as to whether they are still considered valid or subject to potential federal enforcement. 

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On February 19th, eight Democrat Senator's wrote a letter to EPA regarding its plans for issuance of greenhouse gas regulations for vehicles, factories and power plants.  This from the Wall Street Journal:

The lawmakers, including prominent Senators Max Baucus, (D., Mont.), Carl Levin, (D., Mich.) and John Rockefeller, (D., W.V), warned EPA chief Lisa Jackson in a letter that "ill-timed or imprudent regulation of [greenhouse gases] may squander critical opportunities for our nation, impeding the investment necessary to create jobs."

The letter could boost a Republican effort led by Sen. Lisa Murkowski, (R., Alaska), to prevent the EPA from regulating stationary greenhouse gas emitters such as power plants, refineries, steel mills, chemical plants and cement kilns.

The Senators letter also showed there is still a basic misunderstanding of how regulation of GHGs emissions from vehicles are tied to stationary source regulation. 

The Senators suggest EPA move forward only with the Light Duty Vehicle rule setting GHG standards for vehicles so that there can be one national standard.  However, based on this comment, it appears the Senators did not understand that issuance of the Light Duty Vehicle rule will automatically trigger regulation of stationary sources without any additional EPA rulemaking.

EPA Responds

In perhaps the quickest response in history, EPA Administrator Jackson has already released her written response.  The response is notable not only for its timeliness, but the key insights it provides into EPA's greenhouse gas (GHG) rulemaking strategy.

The fact the letter provides so much valuable information about EPA's strategy only days after the Senator's letter was sent can only mean EPA's has decided on its path.  Now EPA is floating a trial balloon of its strategy in its response letter.  There are several key developments in the letter:

1. No final GHG standards in 2010.  EPA will finalize the Light Duty Vehicle GHG rule in late March. However, the first vehicle GHG standard will be effective in 2011 (Model Year 2012).   EPA explains that its legal view is that GHG do not become a "regulated" pollutant under the Clean Air Act until the Model Year 2012 standards are effective in 2011.  By adopting this legal interpretation, EPA is effectively buying itself a year before GHG emissions from large stationary sources will be regulated.  Of course, its an open legal question as to whether future vehicle standards amount to "regulation" sufficient to trigger stationary source regulation of GHGs immediately. 
2. EPA is planning major changes to its proposed Tailoring Rule. In the draft Tailoring Rule, EPA proposed federal permit triggers for GHGs of 10,000 or 25,000 metric tons of CO2. Based upon this letter, EPA is proposing to go higher, thereby bringing in even fewer large stationary sources of GHGs in the short term. For example, in 2011 only sources that already trigger federal permitting for non-GHG emissions will have to evaluate their GHG emissions for controls. After 2011, the letter suggests much higher triggers than 25,000 metric tons from 2012-2016.
3. EPA is buying time on BACT.  Major sources triggering federal permits must install Best Available Control Technology (BACT) to reduce emissions.   A major issue has been EPA's determination of what will constitute BACT for GHGs.  Especially concerning was the fact some possible controls, like carbon sequestration for power plants is not yet ready for implementation.   By tying the date for regulation of GHGs from stationary sources to the 2012 model year vehicle regulations, EPA has bought itself a year to work through these issues. 

A couple of final points. EPA discusses the implications of Sen. Lisa Murkowski's proposed amendment to disapprove of EPA's "endangerment finding." EPA states the immediate result will be revival of the California Waiver for regulation GHGs from vehicles. EPA warns there will be no national standard for motor vehicle emissions.

Also noteworthy is the fact the letter simply waives off claims that EPA may not have the legal authority to set higher trigger thresholds for stationary sources that the 100/250 tons triggers in the Clean Air Act.  Administrator Jackson simply claims EPA has the authority and criticizes business groups for suggesting they would appeal the Tailoring Rule.

Finally, EPA Administrator concludes the letter by making the rather harsh statement that passage of the proposed Senator Murkowski resolution would put the U.S. behind China and more like Saudi Arabia its treatment of the issue of Climate Change. No doubt, that type of rhetoric is designed to discourage Democratic support for the resolution.

Very interesting response from EPA.  It is written in such a way to suggest..."no need for immediate legislative action, nothing it really going to happen for at least a year if not longer."  However, this assumes EPA has the legal authority to implement the strategy suggested in its response letter.

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Major uncertainty surrounds Ohio's air permtting program.   I use the term "certainty" because that was the buzz word utilized when business groups fought hard for major reforms that eventually were passed in Senate Bill 265 in 2006. 

Back in 2006, business groups were concerned that  Ohio's system for issuing air permits was far more onerous and unpredictable than other states.  The focus of attention was the requirement to install Best Available Technology (BAT) on smaller sources of air pollution.  

Business groups complained BAT was imposed on an "ad-hoc" case-by-case basis.  Individual permit reviewers could develop inconsistent determinations as what constituted BAT on same or similar sources.  The goal was to get away from this uncertain application of BAT.

The two major reforms secured in Senate Bill 265:

1. All sources less than 10 tons per year (tpy) were no longer required to install BAT
2. For all sources larger than 10 tpy, Ohio EPA could only require BAT through rulemaking that defined BAT consistent with elements set forth in S.B. 265.  It was contemplated the rules would spell out the requirements for various source categories.  Thus, providing certainty by avoiding case-by-case determinations of BAT.

What is the status of air permitting in Ohio three years after passage of these reforms? 

• Business have far less certainty regarding Ohio's permitting process than they did three years ago (prior to S.B. 265)
• Businesses are caught in a stalemate between U.S. EPA and Ohio EPA that could subject them to federal enforcement and make their permits invalid
• Ohio businesses are no closer to avoiding case-by-case BAT decisions as they were three years ago
• In some cases, businesses will take longer to get their permits and still have the same level of required controls
• The two major reforms (the less than 10 tpy exemption and BAT through rulemaking for larger sources) will never be implemented unless hard choices are made.

To preserve the two major reforms, means facing the reality that federal law requires Ohio demonstrate the changes are valid. How does Ohio demonstrate validity?

1. Ohio EPA would have to quantify the lost reductions from "weakening" the BAT requirement (something Ohio EPA hasn't done in three years).
2. The business community will have to help direct the Agency in identifying new air pollution control programs that can be used to offset the lost reductions attributable to BAT.

Less Than 10 TPY Exemption

My last post discussed the recent federal court ruling which determined the exemption from installing BAT for sources smaller than 10 tpy was inconsistent with federal law.  The Court found Ohio EPA failed to properly revise its State Implementation Plan (SIP- the State plan for how it will meet federal air quality standards).

At issue, was a prohibition contained in the Clean Air Act called "anti-backsliding."  In essence, if a state is going to reduce air pollution requirements on one set of sources it must make up for lost reductions by imposing more stringent controls someplace else.

The response to the Court decision by some business groups is to urge Ohio EPA to appeal the Magistrate's decision.  This from the Ohio Manufacturer Association (OMA) Web page regarding the decision:

The OMA is urging the Ohio EPA to mount a vigorous defense of this common sense regulatory reform through all available legal channels.

However, even if the Agency successfully challenged the Magistrate's decision on appeal, I don't see how this fixes things for the business community. At issue in the Magistrate's decision was a Citizen Group's rights to challenge a State's implementation of its SIP- Ohio's air pollution control plan.  

Regardless of the Citizen's suit, U.S. EPA has already put Ohio EPA on notice that it believes the less than 10 tpy BAT exemption is inconsistent with federal law.  U.S. EPA sent a letter back on June 5, 2008 that it could not approve Ohio's attempt to provide the 10 TPY exemption. 

Without U.S. EPA approval, all permits issued without BAT due to the state exemption could be deemed to violate federal law.  All those businesses holding those permits could be subject to federal enforcement action or their permits determined invalid. 

A win on appeal barring the Citizen Group from challenging Ohio EPA isn't truly a fix.  The harsh reality is the only way to fix things for the business community is for Ohio to make an approvable submittal to U.S. EPA.  To be approvable, Ohio will have to demonstrate their reforms don't violate "anti-backsliding."

To make such a demonstration, Ohio EPA must quantify the lost reductions attributable to the 10 TPY exemption- something I don't believe Ohio EPA has done in the three years since passage of S.B. 265.  After Ohio EPA quantifies the difference, it will have to work with the business community to come up with replacement controls to make up for the lost reductions. 

Anything short of developing a "true" fix, leaves the business community with greater uncertainty than it had prior to S.B. 265.

BAT Through Rule Making On Sources Greater Than 10 TPY

Things may even be more complicated for sources that emit more than 10 tpy.  S.B. 265 mandates that Ohio EPA specify BAT on these larger sources through rulemaking.  S.B. 265 provided a three year window to give Ohio EPA time to develop rules specifying BAT for different air pollution source categories. 

In the three years since, Ohio EPA has yet to finalize a single rule defining BAT.  Since the three year deadline has passed, State law now prohibits Ohio EPA from requiring BAT on sources larger than 10 tpy because it has not adopted rules consistent with S.B. 265.  This State law requirement is in conflict with the federal law which requires approval from U.S. EPA before it can be deemed effective. 

On December 10, 2009, Ohio EPA proposed a policy titled "BAT requirement for Permit Applications Filed on or After August 3, 2009."  [August 3rd was the deadline imposed by S.B. 265 after which Ohio EPA could only require BAT through rulemaking].  The Policy was put out for public comment which closed January 31, 2010.  The policy describes the current status as follows:

Ohio is currently working to develop short-term and long-term set of rules that would implement S.B. 265.  A short-term rule would define BAT on a case-by-case basis consistent with the S.B. 265 provisions.  Long-term rules would attempt to define BAT by category when possible.  However, neither short-term nor long-term rules have been developed. 

U.S. EPA has told Ohio EPA that issuing permits on or after August 3, 2009 without BAT would be considered by U.S. EPA as "backsliding" under the statutory provisions of the Clean Air Act and would not be acceptable. 

The policy goes on to say, because Ohio EPA has not adopted any BAT rules it will require BAT on a case-by-case basis to avoid "backsliding" claims. 

First of all...It's been three years since passage of S.B. 265 and the business community is no closer to its goal of avoiding case-by-case BAT decisions.  Even what Ohio EPA describes as its "short-term rule" would require case-by-case BAT. 

Worse yet, the policy makes clear that businesses may even be worse off then prior to S.B. 265.  In the "Common Questions and Answers" Section of the Policy, at least two critical Ohio EPA comments appear:

Question 1:  If a company indicates they do not want Ohio EPA to establish a BAT limit because a BAT rule has not been developed, what should the permit writers do?

The Policy goes on to answer- try and get the company to voluntarily accept a BAT limit or Ohio EPA will have to process the permit without a BAT limit.  However, if there is no BAT limit in the permit, Ohio EPA states:

We will inform them [the business] that U.S. EPA would likely not approve the permit and that U.S. EPA may take some sort of action against either the company or the Ohio EPA because they don't approve the approach.  We will also inform them that we are obligated to provide U.S. EPA with a copy of any issued permit that does not contain BAT.

In essence, unless a business voluntarily accepts a case-by-case BAT limit, they will be subject to enforcement by U.S. EPA. 

The Second major issue appears in Question 5 of the Ohio EPA policy.  It relates to when sources can avoid New Source Review (NSR) which is the complex federal air permitting program.  Due to the complexities of the program there are strong incentives for businesses to avoid NSR.

Prior to August 3, 2009, Ohio EPA used BAT limits to avoid triggering NSR.  However, the policy makes clear they can no longer utilize BAT to avoid NSR because of the stalemate with U.S. EPA. 

The implication is more sources will have to go through a longer permitting process in order to avoid NSR.  Therefore, no only will sources end up with the same controls as prior to S.B. 265, it will take longer to get their permit.

Conclusion

The status quo should be unacceptable to the business community.  It must decide:

1. Whether the reforms in S.B. 265 are worth holding onto. If not, new state legislation is needed to undo the mess.  
2. If the reforms are still critical, then the business community must engage Ohio EPA to fix its issues with U.S. EPA.  It is very important that the business community involve itself in the details of developing a fix.  Otherwise, it risks Ohio EPA spending valuable time developing proposals businesses believe are unworkable.

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On February 3rd Magistrate Judge Mark Able of the U.S. District Court in Columbus ruled that Ohio EPA (and really the Ohio General Assembly) violated that federal Clean Air Act by exempting small air pollution sources from stringent air pollution requirements.  At issue was one major overhaul of Ohio's air regulation included in state legislation (Senate Bill 265)  back in 2006.  The law was designed to reduce the regulatory burden on small businesses. 

The provision exempted small air pollution sources, those that emit less than 10 tons per year, from the requirement to install Best Available Control Technology (BAT).  These sources would still be required to install air pollution control equipment.  However, these small sources could avoid the more time consuming BAT permitting process.

I was Director of Ohio EPA when Senate Bill 265 was passed.  The complaint regarding BAT was that it resulted in uncertain regulatory requirements for business.  Upon receipt of an air permit for a small air pollution source, Ohio EPA would have to decide on a individual case-by-case basis which pollution controls were the most stringent for that particular source. 

Businesses complained that the determinations as to what constituted BAT were inconsistent among Ohio EPA's five district offices.  They also complained that businesses would not be able to plan ahead of time for the types of controls to install.  Rather, business would be forced to wait until Ohio EPA concluded its evaluation.

To reduce the regulatory burden, Ohio businesses sought two major reforms regarding BAT in Senate Bill 265.  The General Assembly passed the bill which included the following.

1. Exempt all sources smaller than 10 tons from having to install BAT.
2. After August 2009, Ohio EPA could only require BAT on larger sources (greater than 10 tons) through specific rulemaking for those types of sources.

The goal of reducing the regulatory burden was understandable.  However, there is a long standing tenant in the federal Clean Air Act that restricts the ability of State's to change pollution control strategies to achieve federal clean air standards.  This is referred to as "anti-backsliding."

• "Anti-Backsliding"- If you drop an air pollution requirement, you must make up for those lost reductions through alternative control strategies. 

The best example of this perhaps is E-check, the automobile tail pipe test that used to be required in Cleveland, Dayton and Cincinnati.  E-check was dropped in Dayton and Cincinnati after the 10 year contract expired.  In order to drop the program, Ohio EPA was forced to make up the lost reductions through new air pollution control requirements.  One new requirement used to replace E-check was the requirement to use less polluting gasoline (RVP gas) in the summer months in Dayton and Cincinnati. 

Ohio EPA failed to adopt replacement strategies after the General Assembly dropped BAT on sources less than 10 tons.  It is my understanding, that Ohio EPA never actually even quantified the lost reductions attributable to dropping the BAT requirement.  U.S. EPA put Ohio EPA on notice this past summer that it failed to address the "anti-backsliding" issue.

Ohio EPA's failure to adopt new controls to replace BAT- a violation of the "anti-backsliding" principal- was one of the reasons Magistrate Abel struck down the provision as a violation of the Federal Clean Air Act.  According to a recent newspaper article, Ohio EPA has decided to stop issuing permits for small sources while it figures out how to address the decision. 

The agency said Wednesday it won't authorize any new or expanded emissions from small sources until the ramifications of the decision are understood. Spokeswoman Heidi Griesmer said the agency has temporarily suspended issuing permits.

"These are small sources of pollution," she said. "We will be complying with the judge's orders but we're right now looking through the decision and figuring out how to do that..."

Griesmer said it was impossible to determine immediately on Wednesday how many exemptions the state has granted to small source polluters. The agency estimates it will take two weeks to mine through its permit database and count them all, she said.

What a mess...

• The Agency will be forced to decide what to do with hundreds of permits it issued in the last three years in which BAT was not required.  Does Ohio EPA go back and revoke those permits requiring businesses to install different air pollution controls? 
• Does the Agency still try and comply with Legislative mandate to eliminate BAT for small sources?  If so, what new air pollution control requirements will it adopt to replace BAT for sources less than 10 tons.  
• What about permits already in the system that were about to be issued?  No doubt the Agency will be forced to go back and determine BAT delaying these permits by many months.  

This is just a sample of the issues facing EPA after S.B. 265.  Next up-  The second major reform in S.B. 265 that prevents Ohio EPA from requiring BAT on sources larger than 10 tons per year unless done through rulemaking.   

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The twists and turns in the saga of regulation greenhouse gases (GHGs) continue.  After the State of the Union and release of the President's budget, there is speculation that President Obama has abandoned Cap & Trade legislation. 

Meanwhile, businesses face greater risk as a result of new and impending regulatory action.  The Securities and Exchange Commission (SEC) has issued guidance telling companies they must disclosure risks to investors related to the company's exposure to effects of climate change and potential regulations. Finally, EPA is moving ahead with its plans to regulate GHGs using existing authority under the Clean Air Act.

Is Cap & Trade Dead or Alive?

The President only made vague references in the State of the Union to a "comprehensive energy legislation" that will include measures to address climate change.  Speculation was that the Obama Administration had made the decision to drop its plans for Cap & Trade.  The speculation increased with the release of the proposed federal budget, which dropped $646 billion in anticipated revenue from Cap & Trade.  The President only included a "placeholder" for that revenue.

Carol Browner, the President's Climate Adviser, pushed back on the notion Cap & Trade is dead.  This from Politico:

The top White House climate adviser pushed back against reports that a climate bill would be scaled back — but shied away from giving an exact time frame for when the Senate should take up the legislation.

“I think predictions about when something is going to happen in the legislative process are very, very hard to make you have to just continue working at it,” Carol Browner told an audience assembled for a climate and energy forum. “We’re encouraged by what we are seeing, and we’re going to continue working at it.”

In hopes of keeping a bi-partisan compromise alive in the Senate, the President put more nuclear power on the table in State of the Union.  There is also discussion of a scaled back Cap & Trade proposal that would be limited only to utilities. 

Even with a scaled back proposal or other compromises, I see it very hard to get to 60 votes in the Senate.  Which makes the next update the critical issue.

EPA Rulemaking

While some businesses think the reduced prospects of a Cap & Trade bill means they have escaped potential climate change regulation, they may have a major wake up call this March.  EPA is planning on moving forward with a series of regulations that will have dramatic impacts on businesses that emit CO2 and other greenhouse gases.

EPA has finalized its "Endangerment Finding."  This paves the way for the Agency's release of the Light Duty Vehicle Rule which will establish GHG emission standards for vehicles.  As previously discussed in prior posts, finalization of mandatory emission limits for vehicles raises GHGs to "regulated pollutant" status under the Clean Air Act.  

Once GHGs are considered "regulated pollutants", other provisions of the Clean Air Act are automatically triggered, most notably Title V permitting and New Source Review (NSR).  EPA is proposing to finalize its "tailoring rule" simultaneously with the Light Duty Vehicle Rule in order to substantially raise the thresholds for triggering Title V permits or NSR.

The likelihood of regulations was further evidenced by the President's proposed budget, which includes significant increase funding to pay for new EPA regulatory initiatives on climate change. (Summary of EPA proposed budget)

• $47 million more the EPA in the 2011  budget to pay for greenhouse gas regulation
• $4 million would go to the EPA's mandatory greenhouse gas reporting rule.  Major emitters of greenhouse gases must start tracking their emissions this year under EPA's reporting rule.
• $25 million to States to aid in processing new permits that will be required as a result of greenhouse gases becoming a regulated pollutant under the Clean Air Act.
• $7 million is allocated to development of new performance standards including determining what constitutes Best Available Control Technology (BACT) for greenhouse gases.

SEC Interpretative Guidance

On January 27th, the SEC voted to issuance guidance requiring companies to disclose certain risks associated with climate change. The 3-2 vote was highly controversial. 

While some saw the SEC action as an political endorsement of climate change regulation, others believe its the job of the SEC to require disclosure of business risks.  The NY Times, in an editorial, supported increased information on corporate risk associated with climate change-"The S.E.C. action is simply one more incentive for investors and managers to better understand the risks — and the opportunities — out there for publicly traded businesses. "

 From the press release, here is a description of the requirements in the forthcoming guidance:

• Impact of Legislation and Regulation: When assessing potential disclosure obligations, a company should consider whether the impact of certain existing laws and regulations regarding climate change is material. In certain circumstances, a company should also evaluate the potential impact of pending legislation and regulation related to this topic.

• Impact of International Accords: A company should consider, and disclose when material, the risks or effects on its business of international accords and treaties relating to climate change.

• Indirect Consequences of Regulation or Business Trends: Legal, technological, political and scientific developments regarding climate change may create new opportunities or risks for companies. For instance, a company may face decreased demand for goods that produce significant greenhouse gas emissions or increased demand for goods that result in lower emissions than competing products. As such, a company should consider, for disclosure purposes, the actual or potential indirect consequences it may face due to climate change related regulatory or business trends.

• Physical Impacts of Climate Change: Companies should also evaluate for disclosure purposes the actual and potential material impacts of environmental matters on their business.

While the prospects for Cap &Trade legislation have dimmed dramatically over the last few months, this is by no means the end of the story.  Significant new mandatory regulations will be finalized as early as March. 

While there are issues with the House version of the Cap & Trade bill, it would at least create a market mechanism for reducing emissions.  Business opposing Cap & Trade may soon learn that the alternative- regulation under the Clean Air Act- is a far worse proposition.

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