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

In a dramatic reversal from the Bush Administration, the Department of Justice and U.S. EPA are renewing their New Source Review enforcement efforts against coal-fired power plants.  The NSR lawsuits originally commenced during the Clinton years have resulted in billions of dollars in new controls and hundreds of millions in civil penalties. 

The industry had breathed a sigh of relief when the Bush EPA announced they were not going to pursue additional cases.  Now the industry faces the prospect of a new round of very costly litigation, controls and penalties.

U.S. EPA issued a press release announcing the first new NSR complaint:

Coal-fired power plants collectively produce more pollution than any other industry in the United States. They account for nearly 70 percent of sulfur dioxide emissions each year and 20 percent of nitrogen oxides emissions. Emissions from coal-fired power plants have detrimental health effects on asthma sufferers, the elderly and children. Additionally, these emissions have been linked to forest degradation, waterway damage, reservoir contamination and deterioration of stone and copper in buildings.

To combat these adverse effects, the EPA and the Justice Department are pursuing a national initiative, targeting electric utilities whose coal-fired power plants violate the law.

The suits reverse the Bush Administration decision to only conclude the Clinton era NSR lawsuits and to not pursue new cases unless the involve violations of the Bush era  NSR regulations. In 2006, former EPA enforcement chief Grant Nakayama told Congress he would pursue investigations of coal-fired power plants only if they appeared to fall out of step with the administration's series of proposed and final changes to the NSR program .  On October 13, 2005 Marcus Peabody, Assistant Administrator, issued a memorandum to U.S. EPA's Office of Enforcement Compliance Assurance directing the office to pursue only cases involving violation of the Bush era NSR rules. 

The NSR directive is just one of many Bush evironmental policy and regulatory decisions that the Obama Administration has reversed.  Utility representatives said the Obama administration's efforts to ramp up NSR enforcement came as no surprise.

On February 25th, the Department of Justice has sued Louisiana Generating, alleging that the NRG Energy subsidiary violated New Source Review requirements by operating the Big Cajun 2 Power Plant without also installing and operating modern pollution control equipment after the generating units had undergone major “modifications.”(DOJ Press Release)

This follows a similar lawsuit filed earlier in February against Westar Energy, Inc for failing to install Best Available Control Technology (BACT) at one or more of its coal-fired power plants.  The complaint alleges that for more than a decade, the Jeffrey Energy Center has operated without the best available emissions-control technology required by the New Source Review provisions of the Clean Air Act to control emissions of sulfur dioxide, nitrogen oxide and particulate matter, contributing to formation of fine particulate matter, smog and acid rain.
 

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The D.C. Circuit Court of Appeals issued its much anticipated decision in response to U.S. EPA's request for reconsideration of the decision vacating the CAIR program.  The decision marks an important victory for U.S. EPA, the State and provides some level of certainty for utilities.

The Court decided to remand the rule to U.S. EPA so it can fix the rules "fatal flaws" identified in its earlier decision.  This decision has the effect of preserving the CAIR rule in the interim while EPA overhauls the rule.  The Court also rejected the request by some to establish a firm deadline by which EPA must re-issue the rule. 

Here is how the Court explained the rationale for its decision:

Here, we are convinced that, notwithstanding the relative
flaws of CAIR, allowing CAIR to remain in effect until it is
replaced by a rule consistent with our opinion would at least
temporarily preserve the environmental values covered by
CAIR. Accordingly, a remand without vacatur is appropriate in
this case...

We explained that vacatur was appropriate
because of the depth of CAIR’s flaws, the integral nature of the
rule, and because other statutory and regulatory measures would
mitigate the disruption caused by vacating the rule. Id.
However, on rehearing, EPA, petitioners, and amici states point
to serious implications that our previous remedy analysis,
including our consideration of mitigation measures, did not
adequately take into account. The parties’ persuasive
demonstration, extending beyond short-term health benefits to
impacts on planning by states and industry with respect to
interference with the states’ ability to meet deadlines for
attaining national ambient air quality standards for PM2.5 and
8-hour ozone, shows that the rule has become so intertwined
with the regulatory scheme that its vacatur would sacrifice clear
benefits to public health and the environment while EPA fixes
the rule.

While not addressing the issue, the Court rejected its request for reconsideration of what EPA identified as key issues.  One such issue was whether EPA has the authority to adjust the value of Acid Rain allowances under CAIR. 

While this decision is very good news for EPA and the States who are trying to plan for meeting air quality standards, it still leave a tremendous amount of uncertainty.  The Court is not reconsidering any of the "fatal flaws" it identified with CAIR, which were numerous.  The rule that will emerge after being fixed by EPA will look vastly different than before.

Now utilities will be left with making key decisions about the use of allowances and construction of new controls without the benefit of knowing what the new CAIR rule will look like.  While the picture got a little clearer today, there is still a whole bunch of uncertainty.

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I mentioned in my post discussing LADCO air quality meeting that I would put up the most relevant slides or graphics from all the presentation over the two days in Chicago.  I think I can pretty much boil it down to two slides.

This slide was put together by U.S. EPA when meeting to discuss their support of a Legislative fix to reinstate CAIR.  As discussed, no legislative fix appears possible at least in the short run. 

The bar chart shows the reductions of existing SO2 emissions based up various legislative fixes. The bar to the far left is emissions in 2005.  The short series of bars represents full reinstatement of Phase I (2009) and Phase II (2015) of CAIR.  Then we go through no fix, 2 year temporary  fix, 4 year temporary fix, and permanent reinstatement of only Phase I. 

Okay, so this is a great visual for the massive reductions in SO2 expected as a result of CAIR.  With no legislative fix and successful appeal of the Court's decision vacating CAIR unlikely, looks like we are at the "no fix" point on the graph. 

But what does this mean to air quality?  While the presentations from the States all indicate attainment of the 1997 ozone standard (.85 ppm) appears likely, its a much different story for P.M. 2.5 (fine particles).

This is the latest modeling of air quality in the Midwest without CAIR.  The map on the right shows no CAIR. The map on the left with CAIR.  The more color dots the more area not meeting U.S. EPA's PM 2.5 standard.

The chart below provides the overall scorecard.  We go from only 3 areas in the Midwest not meeting the standards, to a total of 20 area. 

Furthermore, all of the presentations discussed that PM 2.5 (fine particle) pollution is regional in nature.  Which means the states will find it probably impossible to attain the standard without regional reductions similar to CAIR's reductions from power plants. 

With more areas not attaining, more states will be forced to consider much costly controls on existing businesses.  In addition, areas that don't meet U.S. EPA's air quality standard find it more difficult to attract new business or plant expansions in their areas.  Not good news for the Midwest during these tough economic times. 

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On September 24, 2008 U.S EPA filed its petition to the D.C. Circuit Court of Appeals for rehearing En Banc on the vacatur of the Clean Air Interstate Rule (CAIR).  While focus may be on EPA's request for rehearing, a significant concession was made in EPA's brief that has major implications regardless of whether rehearing is granted. 

EPA Concedes CAIR Phase Two Reductions Are Not Aggressive Enough

EPA elected to not seek review of the Court's holding that the 2015 deadline for Phase II reductions is unlawful because it is inconsistent with the shorter compliance deadlines for ozone and p.m. 2.5 contained in the Clean Air Act.  The Court held EPA must require reductions as "expeditiously as practical" but no later than the deadlines established in the Clean Air Act (typically 2010).  In the Court's words:

EPA did not make any effort to harmonize CAIR's Phase Two deadline for upwind contributors to eliminate their significant contribution with the attainment deadlines for downwind areas North Carolina v. EPA slip op. at 25

EPA's concession on the Phase Two deadline runs counter to the Bush Administration's position that a legislative fix of CAIR must preserve the entire program.  To the extent EPA's concedes this point in its rehearing is somewhat puzzling as it was unnecessary at this stage of legal maneuvering.  Perhaps this concession paves the way for a Congressional compromise over a short term legislative fix that preserves Phase I of the program.   Certainly this concession means a rewrite of CAIR that includes more aggressive reductions seems inevitable.

EPA's Arguments in Support of Rehearing

EPA's brief appears to try and lay a guilt trip on the Court as its justification for a rehearing.  EPA rightfully points out the major benefits of CAIR that will be lost if at least Phase I of the program is not preserved:

Most significantly, vacatur will jeopardize massive emission reductions...and accompanying improvements in public health.  EPA estimated that CAIR would prevent 13,000 deaths annually by 2010 and 17,000 premature deaths annually by 2015.

Vacatur will also destroy or reduce the value of banked allowances that companies generated through early emission reductions...6.9 million tons of banked Title IV allowances have lost over three billion dollars in value [since the Court's decision]

There is no doubt the courts decision to throw out the CAIR program has resulted in chaos both in the trading markets and with State's struggling to reach attainment with federal air quality standards.  We will see if the Court agrees that these dire consequences satisfy the standard for review that the matter involve a question of "exceptional importance." 

As a second basis justifying review of the decision, EPA argues that the Court has been inconsistent in its review of the NOx SIP Call and CAIR.  The EPA argues the Court previously upheld the NOx SIP Call in Michigan v. EPA and CAIR uses the "same fundamental approach approved in Michigan."  Both air pollution control programs use economic factors to determine the amount of contribution to downwind state nonattainment upwind states must eliminate.  The economic factor being "highly cost effective controls."

This is the crux of the legal issue and has significant implications for the design of any cap and trade program to control air pollution.  Does the Clean Air Act call for elimination of contribution to downwind air quality issues based upon cost of controls or does it require reductions based upon a State's actual contribution to downwind nonattainment?  If it is ultimately decided that actual contribution must be eliminated, it may prove very difficult to craft a valid cap and trade program without new legislative authority.

EPA's strategy to argue inconsistency appears pretty risky given the fact the Court raises questions regarding legality of the NOx SIP Call.  Specifically, the Court states:  "In Michigan we never passed on the lawfulness of the NOx SIP Call's trading program."  The Court's decision appears to suggest it would have thrown out the NOx SIP Call as well if proper challenges had been made.  

The EPA appears to face a steep climb to ultimately win its appeal.   The Court was unanimous in its finding that basing required reductions on cost effective controls does not comply with the Clean Air Act.

What's Next For CAIR?

Through legal maneuvering, U.S. EPA can effectively delay the effectiveness of the Court's decision to vacate CAIR.  The rehearing petition will likely delay it for a couple months while the Court considers the petition including allowing comment by other parties.  Even if the rehearing is denied, which appears likely given the original decision was unanimous, U.S. EPA can file a motion to stay the effectiveness of the decision while it seeks appeal to the Supreme Court.  By Court rules a stay, if granted or not challenged by the other parties, is good for 90 days.

While EPA delays the effect of the Court's vacatur of the program, efforts will focus on a legislative fix that can preserve at least the immediate future of the program.  However, time is running out on this "quick fix" option as Congress adjourns for the election.

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The U.S. Senate Environment and Public Works Committee held a timely hearing on the effect of the Court of Appeals decision vacating CAIR.  There was testimony from US EPA, State, Utilities and one Environmental Group. 

The Senators and all who testified agreed on certain items:

• Substantial health benefits will be lost without action to replace CAIR (17,000 fewer premature deaths avoided each year)
• Tremendous uncertainty exists- the market for trading allowances collapsed following the decision (NOx trading stopped, SO2 allowance prices lost 70% of their value in a day)
• States air quality compliance is in disarray- All who relied on CAIR must redo their clean air plans (SIPs) and will find it extremely difficult to make up the reductions attributable to CAIR
• Utilities risk losing billions in investments in new pollution controls and purchases of allowances (one utility declared a $100 million dollar loss due to collapse of the allowance market)

With so much agreement, one would assume that quick legislative action is likely to address the problem.  Not so fast- Don't forget that the CAIR rule came into existence because Congress could not agree on Clear Skies (a cap and trade legislative proposal).  Those same rifts emerged during the Senate hearing.

• How many P's? (which pollutants should a program cover- NOx, SO2, CO2 or Mercury)
• How many States should be in? (28 versus a national program)
• How steep and fast should reductions be? (there is disagreement even for the two pollutants everyone agrees should be covered- NOx and SO2)

This really is going to boil down to a game of chicken.  On the one side (Democrats, downwind-Eastern states and environmental groups) on the other (Republicans, upwind-Midwest states and the utilities). 

Do those advocating for an aggressive four pollutant bill really want to risk achieving no short term benefits in hopes of more aggressive legislation in the future?   Are they willing to withstand the mess that will ensue in their States without at least a stop gap measure?  Is this really the vehicle to adopt climate change legislation?

On the other side....do Utilities want to face this much uncertainty, especially heading into an election cycle?  Are the Midwest states comfortable that CAIR reductions will be sufficient to meet tougher federal air quality standards?  Are they willing to impose even more costly controls on businesses within their State if cap and trade is taken off the table?

It appears this may be the perfect storm that may actually result in something getting done.  Lets hope so.

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