Court Orders Ohio EPA to Add More Compounds to "Air Toxics List"

Back in 2006, when I was Ohio EPA, I worked on Senate Bill 265 which was the first major overhaul in air pollution regulation in Ohio in over a decade.  One component of S.B. 265 was to provide authority to Ohio EPA to regulate air toxics.  

Prior to enactment of S.B. 265, Ohio EPA did utilize an "air toxics policy" that was used to evaluate whether an air pollution source should obtain a permit due to emission of certain air toxic compounds above certain thresholds.  As a policy, the Ohio EPA did not have clear legal authority to enforce the requirement.  After enactment of S.B. 265, the Ohio EPA was given that authority.  The bill required the director to adopt a list within two years of passage of the bill of those air toxics that could trigger permitting.  

There are literally thousands of compounds that could be considered toxic. Ohio EPA decided to rely upon toxicity information compiled by the American Conference of Governmental Industrial Hygienists ("ACGIH"")  The toxicity value developed by ACGIH is referred to as a chemical's threshold limit value ("TLV"). The TLV represents the value to which a worker could be exposed without health effects.

However, TLVs are based upon worker exposure (8 hour and 5 day work week).  Ohio EPA felt that the number could be too conservative for residential exposures (24 hours and 7 days a week).  Therefore, Ohio EPA took the TLV for each compound and divided it by 10 as a "safety factor."  The result is a standard Ohio EPA refers to as the Maximum Achievable Ground Level Concentration ("MAGLC"). This is the value which it believes a resident living near a facility would not experience health effects.

Ohio EPA Reduces the List of Toxics

With so many chemical compounds, Ohio EPA tried to concentrate on those they felt presented the greatest risk of health effects.  Ohio EPA culled the list based on toxicity to 639 compounds.  Then, utilizing various factors discussed below, Ohio EPA cut down the original list to 303 total compounds. See, OAC 3745-114-01.

The factors utilized to cut down the list to 303 compounds included:

  1. If the compound was used in consumer products or regulated by other agencies (such as pesticides), then they were excluded;
  2. If the only pathway for exposure was non-inhalation (i.e. dermal contact, ingestion);
  3. If health effects are caused by exposure which is sudden and of short duration, such as those caused by emergency release events, including explosions or catastrophic malfunction (referred to as "acute exposure");
  4. Compounds no longer used or produced in Ohio; and 
  5. Those compounds that only cause irritation, not serious health effects.

Legal Challenge

The Sierra Club filed a legal challenge to the final air toxic rule.  The environmental group said the five factors used to cut the list from 639 to 303 compounds were unlawful.  

The 10th Appellate Court upheld three out of the five factors.  See, Sierra Club v. Koncelik  The Court found that Ohio EPA should not have eliminated compounds simply because they currently aren't utilized in the State, because they may in the future.  Also, the Court said that Ohio EPA should not have eliminated compounds that posed health effects only through non-inhalation routes of exposure (i.e. dermal contact or ingestion).  

As a result of the Court ruling, Ohio EPA will be adding to the list of 303 compounds. 

Air Emissions Violations Presumed Continuing in Nature for Purposes of Civil Penalties

On December 6, 2012, the Ohio Supreme Court issued a rare opinion pertaining to the proper calculation of civil penalties in the context of an environmental enforcement action.  The decision has serious ramifications for any company that is required to perform stack tests to demonstrate compliance with air emission standards.  It also may impact any company that has been issued a notice of violation for an air emission violation.

In State ex rel. Ohio Atty. Gen. v. Shelly Holding Co., Slip Opinion No. 2012 – Ohio – 5700 (Dec. 6, 2012), the Court found that once a violation of an air emission permit or regulatory limit has been demonstrated, the violation is presumed to be continuing in nature until the company provides convincing rebuttal evidence that the violation has ceased.  This finding means that any company that exceeds an air emission limit must act quickly to change operations or reduce emissions to demonstrate compliance.  Otherwise, the company could face a very large civil penalty because each day of non-compliance could warrant a penalty up to $25,000 per day.

Rebuttal of the Presumption Air Emissions Violation is On-Going

The Shelly company had failed a stack test of its asphalt plant.  A key aspect of the failed stack test was that it had to been run under "worst case" conditions- Meaning the emissions were measured when the facility was operating at maximum capacity.  The Court held that the failed stack test established that there was an emission limit violation.  

The State asserted civil penalties were owed for each day following the failed stack test until the Company demonstrated it had returned to compliance.  Shelly argued that it was inappropriate to presume such a violation was continual in nature when its normal operations were not at maximum capacity. 

While the trial court had agreed with the Company, the Supreme Court disagreed with Shelly and concluded the burden was on the Company to demonstrate it returned to compliance through one of the following:

  1. A subsequent stack test at maximum capacity that showed emissions within permit limits;
  2. A revised permit or variance;
  3. Operating conditions during the stack test no longer existed;
  4. Mechanical failures were repaired; or
  5. Raw materials and fuels were changed.

However, relative to numbers 3 through 5, the Court suggested a company would need to supply convincing evidence that emissions were actually within limits.  For example, the Court rejected Shelly's argument that normal operating conditions where below maximum capacity and, therefore, the State lacked evidence it violated emission limits on days other than the initial stack test. 

 

Ohio EPA Budget Testimony Sheds Light on New Initiatives

On April 5th, Ohio EPA Director Nally testified on the Agency's proposed budget before the House Finance and Appropriations – Agriculture and Natural Resources Subcommittee.  According to the Director's Testimony, Ohio EPA is not asking for any fee increases.  Ohio EPA's proposed budget calls for a reduction of 11.8% for fiscal year 2012 and 13.8% for fiscal year 2013.  To meet these budget reductions, the Agency is planning on reducing 53 current positions through attrition.

The Director also mentioned the consolidation of the Division of Hazardous Waste Management  (DHWM) into the Division of Solid & Infectious Waste (DSIWM) along with other components in the Division of Emergency Remedial Response (DERR).  DHWM's permitting and inspection activities will be in DSIWM and clean up will be with DERR.

In addition to budget reductions and the consolidation of DHWM, Director Nally also hinted at other initiatives the Agency is planning to undertake in the near future. 

New Ohio EPA Initiatives

“In-lieu Fee” Program –  The Director signaled potential significant change on wetland and stream mitigation requirements.  Typically the 404/401 permit applicant must find appropriate mitigation projects and include those proposals in their permit application.  With an “in-lieu fee" program, the applicant is relieved of the burden of finding a mitigation project .  Rather, the applicant pays a few based on the acreage of wetlands or feet of stream impacted by the project.  The Director has recently announced a "listening session" to hear from the regulated community and others regarding the proposal.

Permitting efficiencies/Permitting Backlog – Most every Ohio EPA Director faces the pressure to get permits out the door faster.  Director Nally is no different.  Upon taking office, he announced this would be a top priority of his administration.  His testimony suggests he will be re-looking at permit-by-rule and general permits to streamline permit approvals.  While the Agency has utilized these tools in the past, business complain that the terms and requirements are too onerous.  Modifying air permitting requirements can present unforeseen issues, as the business community learned after the Courts stepped in blocking major changes adopted in Senate Bill 265.

IT initiatives and Compliance Assistance –  Ohio EPA has moved toward allowing more reports and permitting to be performed using the web or through special electronic systems.  These systems provide flexibility, but businesses complain they can be difficult to use.  The Director announced training sessions to assist businesses with understanding how to use these systems better. 

Brownfields redevelopment – The Director testimony contained a vague reference to a new initiative with brownfield redevelopment.  The current structure has the Ohio Dept. of Development passing out the grant money and Ohio EPA monitoring the clean up.  It will be interesting to watch whether Ohio EPA announces new initiatives in this area to accelerate re-use of  brownfields.

Marcellus and Utica Shale – ODNR has the lead with regard to permitting for gas exploration.  However, U.S. EPA has indicated it will be closely watching and may exercise enforcement authority at sites where drilling has gone wrong or resulted in polluted groundwater.  The Director intends to support ODNR's efforts in light of U.S. EPA's scrutiny.

Expedited Settlement Program (ESP) -- No details were given regarding this new concept to accelerate resolution of enforcement actions.  Here was the Director's testimony...Given my priority of compliance first, I am initiating modifications to the current enforcement process to help drive quicker compliance.  Historically, the existing enforcement options have been time consuming and resource intensive for both the agency and the regulated entity. By developing new steps to be used early in the enforcement process, I hope to resolve uncomplicated cases
expeditiously, putting a facility on notice of a problem, and quickly achieving compliance. 

Perhaps Ohio EPA intends to make modifications at the Notice of Violation (NOV) stage.  The Agency could improve tracking of NOVs and notify businesses more quickly when issues have been resolved.

The Director's testimony did provide a good insight into his early priorities.  Details were not provided so we will need to watch closely as they are released.

Key Lessons for Businesses from a Rare State Court Air Regulatory Decision

You don't often get State court decisions on environmental law, especially on air permitting issues.  Recently, the 10th Appellate Court in Columbus issued a decision that has at least a few major implications for businesses in Ohio.  State of Ohio ex rel Ohio Atty. Gen. v. The Shelly Holding Co, et. al.,

There is a good summary of the facts behind the case and a discussion of the legal conclusions the Court reached on the blog American College of Environmental Lawyers by longtime environmental attorney Mike Hardy.  I won't repeat the history of the case here.  Rather, let me highlight the major implications from the ruling for businesses that operate air sources within Ohio.

Ohio EPA's Permit Backlog

Up until 2008, air sources were first issued a permit to install (PTI) to construct and start-up.  Then the source had to obtain a permit to operate (PTO) for continued operation.  With nearly 70,000 regulated air sources Ohio EPA had thousands of backlogged PTO applications.

To address the issue going forward, the law was changed in June 2008 and new sources could obtain a combined PTIO permit.  This reduced the need for two permits from 2 to 1 and extended the effectiveness from five years (PTO) to ten years (PTIO). (Click here for Ohio EPA chart on difference between the programs).

This was a good fix going forward, but what about businesses who were stuck with the system that existed prior to 2008?  The Court's ruling on potential to emit (see below) shows the danger of the Agency's failure to act on a timely basis.  Shelly submitted timely applications, but was placed at a major disadvantage because the Agency failed to act on those applications on a timely basis.

Key Lesson #1:  Even if a business fulfills its obligations on a timely basis it still can be placed at a regulatory disadvantage based on the Agency's failure to act.

What is a Source's Potential to Emit

A source of air pollution (boiler, paint line, etc.) must obtain a federal permit if it exceeds certain thresholds (100/250 tons per year).  There is a huge incentive for businesses to avoid obtaining a federal permit because they impose more onerous requirements. 

In determining whether a sources exceeds federal permitting thresholds, EPA looks at its design capacity, not its actual day-to-day emissions.  Design capcity is referred to as "potential-to-emit." (PTE).

Unless enforceable restrictions exist on design capacity, PTE is calculated using worst case assumptions- source operation 7 days a week, 365 days per year and 8,760 hours per year.  Enforceable restrictions include:

  1. air pollution control equipment;
  2. restrictions on hours of operation; and/or
  3. restrictions on the type or amount of material combusted, stored or processed.

The 10th Appellate Court rejected Ohio EPA's claim that the restrictions must be federally enforceable (federal rule or permit).  The Court held state permits were deemed sufficient for purposes of enforceability.

However, it rejected Shelly's claim that voluntary restrictions were sufficient, even if those restrictions are in permit applications pending Ohio EPA review.  Until the permit is actually issued, the Court held they don't have sufficient legal effectiveness to avoid the worst case PTE calculation of 365 days a year.

Key Lesson  #2:  You can't rely on permit applications as enforceable restrictions to avoid federal permits. 

Ohio EPA's Failure to Follow the Law

Shelly was hurt by the failure of Ohio EPA act on its PTO applications.  Ohio law imposes an obligation on the Agency to issue permits within 180 days. 

The Court noted Ohio EPA failure to act on a timely basis and held that in considering penalties Ohio EPA failure to act "should not be held against the owner or operator."    An interesting sentence in the ruling-  "After the 180-day deadline passed, the burden falls on Ohio EPA to meet its obligation under law; and owner cannot be penalized for the Ohio EPA's failure."

I can envision that sentence being quoted in future briefs by lawyers whose clients may face penalties partially as a result of Ohio EPA failure to perform its mandated functions on time.

Key Lesson #3:  Don't forget Ohio EPA has legal obligations.  Their failure to meet those obligations could be a basis for a legal defense.

Stack Testing to Determine Compliance

Stack tests are samples of air emissions what a source is operating.  The accuracy of stack tests to determine whether a source is in compliance with its emission standards in a permit has been long debated. 

Businesses have argued that stack tests don't represent normal conditions and are only "a snap shot in time."  Regulators argue that stack tests are a valid way of determining compliance.  Until a source passes a stack test (emissions are within limits), the assumption is the source is operating out of compliance with permit standards and subject to penalties.  Any associated penalties should be based on the time from the failed stack test until the source passes a subsequent stack test.

Key Lesson #4:  To avoid large civil penalties, business should act very quickly to make adjustments following a failed stack test.

 

Ohio Budget Update: Environmental Related Developments

Here is a quick update on some of the important changes that were or were not included in the Ohio Budget (H.B. 1) that impact environmentally related issues and Ohio EPA's budget:

ERAC Deadlines-   As discussed in my previous post, the Ohio Budget included mandatory deadlines placed on ERAC for making determinations on appeals filed before the Commission.  Environmental groups wrote a strong letter to the Governor requesting a veto the ERAC deadlines.  The Governor did not veto the provision, however it appears likely the language will be tinkered with in the Budget Corrections Bill. 

Extension of Deadline for Construction after Issuance of Air PTI:  All air permits for construction and installation of new sources in the State of Ohio include a requirement that the permit expires after eighteen (18) months if construction of the source has not been completed.  An appeal of an air PTI can complicate financing efforts for projects.  Banks may not provide financing while an appeal is pending.  To address this and other issues associated with the construction deadline, the Budget Bill included new language that allows extension of that deadline for any of the following reasons (copy of amendment for exact language):

  • Owner has undertaken a continuing program of installation or modification during the eighteen-month period
  • Owner entered a binding contract for construction of the source within the eighteen month period
  • Director of Ohio EPA issues an extension
  • The air PTI is the subject of an appeal by a third party receives an automatic extension based upon the number of days the permit was under appeal
  • Original permit is superseded by a subsequent air PTI

$1.25 increase in Solid Waste Tipping Fee to fund Ohio EPA:  The municipal solid waste tipping fee was increased by $1.25 a ton which raises the total fee from $3.50 a ton to $4.75 a ton. Of the increase, .25 goes to ODNR for the Soil and Water Conservation Districts. The remaining $1.00 will go to Ohio EPA to support its programs.  

The tipping fee increase was included, in part, to address a reduction in the amount of solid waste going into Ohio's landfills.  As the fee continues to increase, businesses will have a greater incentive to look for alternative ways to dispose of industrial waste other than sending it to a solid waste landfill.  One such option is beneficial use of the material.  Ohio EPA has yet to to release its second draft of the beneficial use rules, however, as costs of disposal increase interest in this option will rise.

Spending Authority Caps:  While the Legislature agreed to restore the $1.25 increase in tipping fees, it failed to remove the spending caps that were placed on Ohio EPA fee accounts in the Senate.  The practical ramification is that even though the accounts have fee revenue, Ohio EPA will be prevented from spending the revenue to support its staff and programs.  Ohio EPA intends to seek removal of the spending authority caps through the Controlling Board.  If Ohio EPA gets support from business groups it appears likely the caps will be removed and possibility of dramatic staff reductions appears unlikely.

Rejection of the Expansion of Renewable Energy Projects-  Ohio has one of the broadest definitions for what qualifies as "renewable energy source" for purposes of meeting the State's Renewable Portfolio Standard (RPS).  Efforts were rejected to expand the definition to include burning of solid waste.