On February 24th, the Supreme Court heard oral arguments in Utility Air Regulatory Group v. EPA– the case which challenges EPA’s attempt to phase in permitting requirements for sources of greenhouse gases (GHGs).  In the end, the case may be much to do about nothing…except another example of how congressional gridlock prevents logical resolutions to complex issues.

 

 

Challenge to EPA’s Tailoring Rule

In Massachusetts v. EPA, the Supreme Court upheld the ability of EPA to regulate GHGs from motor vehicles (the so called "Tailpipe Rule").  In that decision the Court determined that the term "any air pollutant" included GHGs so long as EPA determined GHGs were a threat to public health and environment.

EPA determined GHGs were a threat to public health and the environment in its "Endangerment Finding."  The Supreme Court declined to hear the case challenging EPA’s finding. Following EPA’s determination, GHGs officially became a regulated air pollutant under the Clean Air Act.

Following EPA’s Endangerment Finding, EPA concluded that complex federal permitting requirements (PSD and Title V) would also be triggered for sources of GHG because the term "any air pollutant" was used in that portion of the Clean Air Act as well.  Pursuant to that section of the Act, any facility that emits more the 100/250 tons per year of a pollutant regulated under the Act must go through EPA’s New Source Review (NSR) program. As part of NSR, new sources or existing sources that are modified must demonstrate they have installed Best Available Control Technology (BACT) to reduce emissions of each regulated air permit.

Because GHGs are emitted in much greater quantities than typical Clean Air Act pollutants, EPA was concerned that application of the 100/250 ton per year threshold to GHGs would trigger thousands of permits. EPA indicated the Agency and States did not have the capacity to process that number of permits.

To address the situation, EPA promulgated the Tailoring Rule to temporarily raise the permitting thresholds. Under the first stage of the Tailoring Rule, new facilities that emit 100,000 tons per year of carbon dioxide-equivalent and existing facilities that increase their emissions by 75,000 tons per year of carbon dioxide-equivalent will trigger NSR,

Petitioners challenged EPA’s Tailoring Rule by arguing EPA did not have the authority to simply re-write the statute.  They also pointed to language in the PSD portion of the Clean Air Act which suggests PSD was meant to apply to pollutants with local impacts, not global impacts.  Industry challengers were concerned that allowing 90 different state and local permitting authorities to decide what constituted BACT for GHGs would be chaos.

Justices Highlight the "Absurdity" of EPA’s Proposal

EPA justified its Tailoring Rule based on the legal theory that it would temporarily adjust the 250/100 trigger thresholds because applying those thresholds immediately to GHGs would lead to "absurd results."  

Justice Kagan noted that the purpose of the 250/100 trigger thresholds were to differentiate between large and small sources.  Justices Breyer and Alito followed that point by noting EPA’s position was illogical in that EPA said the trigger thresholds led to absurd results, yet EPA would eventually work toward utilizing those thresholds for GHGs.

Clearly, the Justices were highlighting a core issue with EPA’s Tailoring Rule.  Perhaps it would have been better to simply pick a more logical threshold for GHGs that would have differentiated between large and small sources of GHGs.  

EPA’s attorney basically acknowledged that may have been a better approach, but EPA was concerned simply coming up with an entirely new threshold went beyond its authority.  EPA argued, rather than totally eliminating the 250/100 thresholds for GHGs, EPA would re-interpret other policy positions to try capture only larger sources.  For example, EPA could look at a source’s actual emissions versus their potential-to-emit (assumed operation 24/7) when determining if the 250/100 ton threshold was exceeded for GHGs.

EPA’s argument seems pretty weak.  It is not simply the administrative burden of regulating thousands and thousands of sources of GHGs.  Rather, it is the fact such approach clearly goes against the intent of the Clean Air Act PSD regulations to regulate only large sources.  The Court seemed troubled by EPA’s attempt to temporarily raise permitting thresholds.

Challenge to EPA’s Tailoring Rule Becomes "Much to do About Nothing"

While the Court seemed troubled by EPA’s approach, even if it vacates the Tailoring Rule, the Court’s decision will likely have very little impact on EPA’s overall effort to regulate GHGs.

Challengers conceded in their briefs that EPA has the authority to regulate GHGs from sources of other pollutants subject to National Ambient Air Quality Standards (NAAQS) for which geographic area is in attainment (referred to as "anyway sources").  As noted by Chief Justice Roberts, this construction would allow EPA to regulate 83% of GHG stationary source emissions versus 86% under EPA’s more expansive reading.

When Justices pressed why they should care about a fight over 3% of the emissions, EPA’s attorney argued such an interpretation would be inconsistent with EPA’s prior interpretations. However, Justice Breyer noted that such an interpretation "does less violence" to the Clean Air Act than EPA’s proposed ratcheting up of the 250/100 trigger thresholds.  

Based on questioning from the Justices, the most likely outcome of the case is that only 3% of emissions will be impacted either way.  

Supreme Court Argument Highlights the Problem with an Ineffectual Congress

Virtually everyone, including EPA, concedes the 250/100 tons thresholds don’t make sense when applied to GHGs.  EPA has previously admitted that the Clean Air Act, as currently constructed, is ill suited for regulation of GHGs.  However, with Congress unable to compromise, the country is left with the false choice of doing nothing to combat climate change or utilize an Act that was last amended nearly 25 years ago.

The stakes on climate change are simply too high to be left with this result.  The "do nothing" approach on climate change is a non-starter.  However, the uncertainty and "absurdity" that results from using the current Clean Air Act construct to regulate GHGs has unreasonable implications for industry.  

Climate change regulation has greater implications for the county than, perhaps, even the original issues that shaped the Clean Air Act.  Yet, the inability of Congress to reach middle ground will result in the institution of imperfect and impractical climate change regulations. 

[Photo courtesy www.TheEnvironmentalBlog.org]

 On September 30th, the Congressional Research Service released a very interesting report titled "EPA Standards for Greenhouse Gas Emissions from Power Plants: Many Questions, Some Answers."  The report was prepared as a review of the effect of recent new Clean Air Act regulations on existing and future coal fired power plants.

How New Source Performance Standards (NSPS) Were Triggered for Coal Plants

Since the Supreme Court’s decision in Massachusetts v. EPA, greenhouse gases have been considered a pollutant under the Clean Air Act.  As a pollutant, EPA has regulatory authority to reduce emissions under the existing authority provided under the Act if it determined regulation was necessary.

In December 2009, EPA followed the Supreme Court decision with its "endangerment finding" with regard to emissions of GHGs. The finding was that GHGs "may reasonably be anticipated to endanger public health and welfare" as a result of climate change.  This key finding triggered the requirement to regulated GHGs under the Clean Air Act.

According to EPA, coal fired power plants roughly account for one third of all man made GHGs emissions in the United States.  Under Section 111 of the Clean Air Act, EPA must set air emission standards for categories of sources that cause or contribute significantly to air pollution.  As the largest source of GHGs, EPA was legally required to move forward with establishing regulations under Section 111.

Once EPA establishes NSPS standards for new sources, under Section 111(d) it must then promulgate NSPS standards for existing sources.

EPA Establishes NSPS Regulations for New Coal Fired Powered Plants 

In 2012, EPA initially proposed NSPS standards for new coal fired power plants.  The EPA received a large number of comments and decided to re-propose NSPS standards in September 2013.  

The re-proposed standard would set a limit of 1,100 pounds of carbon dioxide (CO2) per megawatt-hour (MWh) of electricity generated for coal fired electric generating units (EGUs).  The EPA also set a standard of 1,000 or 1,100 lbs/MWh for new natural gas fired boilers.  The effect of the rule is that new coal fired power plants would have to basically have equivalent emissions to a natural gas plant.

EPA stated in its proposal that a new coal fired power plant produces roughly 1,800 lbs. CO2/MWh. Therefore, new plants would need to achieve a 40% reduction in emissions to be equivalent to natural gas plants.

The only technology that could possibly achieve a 40% reduction is carbon capture and storage (CCS).  However, CCS poses a number of unique challenges.  First, it roughly uses 30% of the energy a plant would generate to transport and store the CO2 below ground.  Second, industry argues that it is still not a proven technology.

The "War on Coal"

Industry believes the EPA’s NSPS proposal for new coal fired power plants effectively ensures no new plants will be constructed.  Between the lost efficiency in having to transport and store C02 and the lack of reliability of CCS as a control technology, coal will no longer be competitive with natural gas for future electric generating units.  For these reasons, the industry has argued that EPA is engaged in a "war on coal."

EPA argues that the technology has been proven and the rule is necessary in order to motivate industry to improve CCS technology.  EPA cites to prior examples where the Clean Air Act spurred technological development at much less cost than anticipated.

While the fight over the NSPS standard for new plants is intense, the real issue is EPA’s future promulgation of an NSPS standard applicable to existing sources.  The average coal-fired power plant is approximately 40 years old.  Requiring CCS on plants that are close to retirement seems highly unlikely.

EPA seems to be suggesting that the NSPS for existing sources will push for efficiency improvements in order to reduce emissions rather than CCS.  Even if the NSPS for existing sources is more flexible than for new plants, it will still increase compliance costs for existing coal plants.  

Key Observations in the CSR Report 

The Congressional Report regarding EPA’s NSPS standards concludes that the argument over the "war on coal" is largely symbolic.  The report notes that the cheap cost of natural gas is really causing the shift away from coal power, not EPA regulations.  The report notes:

"The debate over EPA’s proposed carbon pollution standard for new power plants is largely symbolic, and is characterized by exaggeration on both sides.

  • It is symbolic because this rule by itself will have little impact.  Its real significance is that without the promulgation of a rule for new sources, EPA cannot, under the Clean Air Act, proceed to regulate existing sources.  It sis the standards for those existing plants that may actually reduce the nations’ GHG emissions, and in the process, could have significant impacts on coal-fired electricity.
  • It is exaggerated because both EPA and the affected industries describe the rule itself as having far more impact than it will.

"Gas is projected by most experts to be cheap and abundant for the foreseeable future.  Since the early 1990’s, new coal-fired plants have accounted for less than 10% of new power-generating capacity.  In these conditions, the electric power industry is likely to continue what it has already been doing for two decades:  building gas-fired plants (or relying on renewable sources) when it needs new capacity."

"The coal industry is unhappy with this, and has tended to place the blame for its current difficulties on EPA; but, actually, the market is the key factor in coal’s recent decline…The net result is that coal is simply not competitive with natural gas in most areas."

With so much intensity surrounding the debate regarding EPA’s NSPS standard for new coal fired power plants, the report serves as reality check.

It is an issue that just won’t go away…Our incredibly hot summer seems to have re-focused attention on doing something regarding climate change. 

James E. Hansen, director of NASA’s Goddard Institute for Space Studies, in Friday’s Washington Post, announced the release of a new study.  The title of Mr. Hansen’s op-ed piece shows what the new study concludes- Climate Change is Here—and Worse than
We Thought:

In a new analysis of the past six decades of global temperatures, which will be published Monday, my colleagues and I have revealed a stunning increase in the frequency of extremely hot summers, with deeply troubling ramifications for not only our future but also for our present.

This is not a climate model or a prediction but actual observations of weather events and temperatures that have happened. Our analysis shows that it is no longer enough to say that global warming will increase the likelihood of extreme weather and to repeat the caveat that no individual weather event can be directly linked to climate change. To the contrary, our analysis shows that, for the extreme hot weather of the recent past, there is virtually no explanation other than climate change.
 

Media reports from this summer are painting a dramatic picture of the impact from the summer’s heat wave.  Take today’s AP news article – Thousands of Fish Die as Midwest Streams Heat Up:

Thousands of fish are dying in the Midwest as the hot, dry summer dries up rivers and causes water temperatures to climb in some spots to nearly 100 degrees.

About 40,000 shovelnose sturgeon were killed in Iowa last week as water temperatures reached 97 degrees…..The fish are victims of one of the driest and warmest summers in history. The federal U.S. Drought Monitor shows nearly two-thirds of the lower 48 states are experiencing some form of drought, and the Department of Agriculture has declared more than half of the nation’s counties — nearly 1,600 in 32 states — as natural disaster areas. More than 3,000 heat records were broken over the last month.

With new media reports of the impact of the heat wave and new studies emerging confirming the impact of climate change conservatives have started to see its an issue that they need to get ahead of rather than simply resist.

Conservative groups have held meetings this summer to talk about pushing for a carbon tax to replace other taxes while addressing climate change.  A recent CNN article discusses how the proposal to put a tax on certain fossil fuels in gaining support amount some Republicans-  Carbon Tax Gets Unusual Support:

We have to have a system where all forms of energy bear their full costs," President Reagan’s former Secretary of State George Shultz said in a recent interview with Stanford University News. Shultz now heads a task force at Stanford that is currently studying the feasibility of a carbon tax.

For Shultz there are many reasons to support such a tax. One is making fossil fuel energy sources absorb costs that are currently borne out by society at large, such as through higher health insurance premiums or Medicare bills caused by pollution-induced diseases.

He also cites energy independence, as well as global warming, "which is not a matter of opinion, but a matter of fact," he said. "The arctic is melting. A lot of people seem to be scoffing at the idea of global warming, but reality will catch up with them."

The old saying is that elections go the way of the economy.  Perhaps the debate over climate change regulation goes the way of the weather.  

Political ads still try and cast support for cap and trade as a negative for those politicians that supported the proposal in Congress.  However, as long as media headlines are filed with the dramatic impacts of this years hot summer, it will become much more difficult for politicians to cast support for doing something on climate change as a negative. Perhaps that is why conservative groups are trying to get ahead of the curve by exploring policy options that they see as more palatable. 

Let’s say Romney wins the election.  Do you see President Romney, with the current "hot weather" news cycle, repealing all of the EPA climate change regulations without some sort of new policy initiative like a carbon tax?  That just seems far less likely. 

For an interesting discussion as to whether climate change regulation is back on the table, see the National Journal’s Energy Expert’s Blog- Is Momentum Building to Act on Climate Change.

Last month, the D.C. Circuit Court of Appeals rejected challenges to U.S. EPA’s Tailoring Rule which establishes the permitting threshold for greenhouse gas (GHG) pollutants.  On July 3rd, EPA issued a rulemaking that will maintain the current GHG thresholds for the immediate future.  The question is how long before environmental groups push EPA to lower the thresholds?

Tailoring Rule

Pursuant to the Clean Air Act, any facility that emits more the 100/250 tons per year of a pollutant regulated under the Act must go through EPA’s New Source Review  (NSR) program.  As part of NSR, new sources or existing sources that are modified must demonstrate they have installed Best Available Control Technology (BACT) to reduce emissions of each regulated air permit.

Once EPA promulgated the Tailpipe Rule to control GHG emissions from vehicles, GHG’s became a "regulated pollutant" for purpose of NSR.  Once GHGs became a  "regulated pollutant" any source that emits GHGs above applicable thresholds would trigger NSR.

Because GHGs are emitted in much greater quantities than typical Clean Air Act pollutants, EPA was concerned that application of the 100/250 ton per year threshold to GHGs would trigger thousands of permits. EPA and the States did not have the capacity to process that number of permits. 

To address the situation, EPA promulgated the Tailoring Rule to temporarily raise the permitting thresholds.  Under the first stage of the Tailoring Rule, new facilities that emit 100,000 tons per year of carbon dioxide-equivalent and existing facilities that increase their emissions by 75,000 tons per year of carbon dioxide-equivalent will trigger NSR.

EPA Must Eventually Lower GHG Thresholds

In the July 3rd action, EPA said that the States and EPA did not have the capacity to process additional NSR permit that would be required if it lowered the threshold.  Therefore, it kept the trigger thresholds at 100,000 and 75,000 tons per year. EPA pointed to the economy’s impacted on federal and state budgets as one reason that permitting authorities lacked additional capacity to process a greater number of permits.

EPA has announced that it will study the burdens associated with lowering GHG thresholds by April 30, 2015.  EPA has said, following completion of the study, that it will review the permitting thresholds and determine if they should be lowered by April 30, 2016.

The EPA must eventually lower the thresholds.  The 100/250 ton per year trigger threshold for NSR is in the Clean Air Act.  EPA amend the trigger threshold through rulemaking (i.e. the Tailoring Rule).  To support the Tailoring Rule, EPA relied on legal precedent that EPA says provides it authority to adjust the statutory thresholds through rulemaking temporarily.

How Long Before EPA is Pressured to Lower the Thresholds?

In their comments to EPA’s proposed rule, environmental groups urged EPA to lower the permitting thresholds.  In an article appearing in BNA, David Doniger, policy director for the Natural Resource Defense Council’s (NRDC) Climate Center, indicated the organization would support EPA position…for now.

“Certainly, this holding things level knocks the legs out from under the feverish claims that EPA was on the march to get to hotdog stands,” Doniger said. “This signals that there’s great reluctance on EPA’s part to get beyond the largest sources.”

While the NRDC and other groups are willing to hold off for now, its clear that their expectation is EPA will lower the thresholds in 2016.  It will be very difficult for EPA to maintain that there is no ability to process additional permits by that date. 

EPA Applies Plantwide Applicability Limits (PALs) to GHGs

A PAL is a site-specific plantwide emission level for a pollutant that allows the source to make changes at the facility without triggering the requirements of the PSD program, provided emissions do not exceed the PAL level.  Instead of a facility having to analyze each emission unit as a potential modification that may exceed NSR thresholds, the PAL says as long as overall plant emissions form all sources do not exceed the PAL, the facility will not trigger NSR.

In the July 3rd rulemaking, EPA is  revising the PAL regulations to allow for GHG PALs to be established on a CO2e basis.  This should provide more flexibility and reduce the number of permits that would otherwise be triggered through plant modifications.

 

In perhaps the biggest environmental decision in decades, the D.C. Circuit Court of Appeals upheld all aspects of EPA’s complex regulation of greenhouse gases under the Clean Air Act.  Each piece of EPA regulation was controversial, yet the Court validated the overall approach paving the way for future action by EPA. 

Flashback several years ago, when the Obama Administration stated its preference was to enact cap-and-trade legislation to address climate change.  The Administration it preferred Congressional action rather than using the authority under the Clean Air Act which it saw as ill-suited for regulation of GHGs.  In an attempt to encourage a reluctant Congress to act on the controversial legislation, EPA threatened that it would proceed with enacting regulations under its existing Clean Air Act authority.   

Congressional efforts to pass cap-and-trade failed, while EPA continued to march forward with regulations.  Like a series of dominoes, once the initial regulations were promulgated successive regulation followed capturing more sources.  Here is a brief re-cap of EPA’s actions:

  • Endangerment Finding- before regulating greenhouse gases (GHGs) from motor vehicles, the Supreme Court told EPA in Massachusetts v. EPA that the Agency must first determine whether GHG emissions "endanger public health;"
  • Tailpipe Rule–  After making the determination GHG motor vehicle emissions did endanger public health, EPA enacted standards for emissions from motor vehicles under the Tailpipe rule;
  • "Regulated Pollutant"-  Under the CAA’s structure, once a pollutant becomes "regulated" from any source, stationary sources must comply with New Source Review (NSR) requirements.  The CAA establishes a permitting threshold of 100/250 tons per year for any "regulated pollutant."  EPA issued the "timing rule" to clarify that GHGs from factories and other so called "stationary sources" would be covered by NSR once the Tailpipe standards were effective.
  • Tailoring Rule–  EPA determined that automatic application of the 100/250 ton threshold for stationary sources would overwhelm regulatory agencies,  The Agency estimated federal permit applications would jump from 280 per year to 81,000 per year. To soften the blow of inclusion of GHG emissions in NSR permitting, EPA enacted the Tailoring Rule.  Through the rule, EPA temporarily raised the permitting trigger thresholds from the CAA 100/250 tons up to 75,000 tons per year.

Industry and some States filed challenges to each of the rules discussed above.  The Court consolidated those challenges and on June 26th, the D.C. Circuit issued its opinion in Coalition for Responsible Regulation, Inc. v. EPA, No. 09-1322 (D.C. Cir. June 26, 2012).   The Court rejected all of the Coalition’s challenges to each of the EPA rules. 

While an appeal to the Supreme Court is likely, the D.C. Circuit often cited to the Supreme Court’s decision in Massachusetts v. EPA to support upholding the EPA rules.  Therefore, it is quite possible the Supreme Court will reject a petition to hear an appeal.

Notable Findings of the D.C. Circuit

The importance of Court’s decision cannot be overstated.  The most fundamental finding was the Court upheld every aspect of EPA’s overall regulatory strategy for GHGs.  Here are some other key findings of the Court:

  1. Science v. Policy–  The Court said that EPA’s was directed by the CAA to make its Endangerment finding based purely on science, not policy.  Petitioners wanted EPA to consider other factors, such as: implications on the economy; whether GHG regulation would be effective in mitigating climate change; and whether society would simply adapt to climate change. The Court held EPA was limited to making a determination as to whether GHGs from motor vehicles endanger public health and welfare based  purely upon science.  The Court noted that EPA relied upon reviews of some 18,000 peer reviewed scientific studies in concluding GHG emissions do endanger public health.
  2. Precautionary Principle-  The Petitioners challenged EPA’s Endangerment Finding because it did not specifically determine the level of atmospheric concentration of GHGs that endanger public health (i.e. the safe levels of GHGs).  The Court found the CAA is "precautionary and preventive" in nature.  In other words, EPA need not establish with certainty that climate change is occurring and will cause specific harms.  EPA only needed to find that the scientific evidence show its reasonable to anticipate dangers to public health if GHGs are not controlled.
  3. Those Who Benefit from Reduced Regulation Don’t Have Standing to Challenge the Reduction–  Of all the EPA climate change rule-making, the Tailoring Rule seemed to be the most susceptible to legal challenge.  EPA, in essence, re-wrote a statue through rule-making.  This is typically not a power granted the executive over the legislative branch of government.  Perhaps to avoid confronting the issue, the Court held the petitioners had no standing to challenge the relaxation of the 100/250 ton per year permitting threshold in the Tailoring Rule because petitioners only benefit from the rule.  The Court questioned why Petitioners would want the rule struck down triggering thousands of federal permits.
  4. Court Says Congressional Action Unlikely-  In commentary, the Court said it hat "serious doubts" that Congress will ever enact legislation addressing Climate Change. 

What’s Next?

If the decision stands, it paves the way for EPA to proceed with stricter regulation using its existing CAA authority. EPA could proceed without any Congressional action.

Even though EPA’s Tailoring Rule was upheld, the Agency will be forced to slowly ratchet down over time the permitting threshold.  Unless Congress acts, EPA will be forced to require permits from more and more sources, including smaller commercial buildings.

EPA is also likely to follow with additional GHG regulations.  EPA will likely adopt new GHG emission threshold standards for major source categories.  It is even possible that EPA will implement National Ambient Air Quality Standards (NAAQS) for regulation of GHGs.  Use of the NAAQS could force each of the states to adopt there own GHG regulations on sources.

While EPA marches forward with complex GHG regulations, as things stand, it appears the Court is right in its prediction that Congress will not take action.    Any sort of  cap and trade bill appears dead. With the division between Republicans and Democrats over the issue, it appears Congressional reform of the CAA to better fit GHG regulation is highly unlikely.

On March 28th, U.S. EPA released its highly controversial rulemaking which establishes a carbon dioxide (CO2) emission limit on new coal-fired power plants.  All future coal-fired power plants will have to utilize an unproven technology, carbon capture and sequestration (CCS), to meet the emission limits.  CCS involves capturing CO2 and injecting it deep beneath the earth’s surface for permanent storage.

EPA’s proposed rule would exempt from the CO2 emission limit new coal plants that begin construction in the next twelve (12) months.  Some analysts have commented that the fifteen coal-fired power plants currently slated for construction may be the last coal plants constructed in the United States.  This from Businessweek:

“This is the tail end of coal generation build-out,” said Teri Viswanath, the director of commodity markets strategy at BNP Paribas SA (BNP) in New York. “The ones we are getting today — that is going to be the last hurrah for coal-fired generation.”

Certainly that statement would appear to be true unless some of the current plants slated to utilize CCS can demonstrate its a workable technology.  However, with the risk associated with CCS and the costs of new coal power plants, cheap natural gas does seem to be the fuel of choice for new electricity generation in the United States.

Basics of the EPA Rule

EPA’s proposed Carbon Pollution Standard for New Power Plants would apply to all fossil-fuel-fired electric utility generating units (EGUs) that are larger than 25 megawatts.  These new EGUs would have to meet an output-based standard of 1,000 pounds of CO2 per megawatt-hour (lb CO2/MWh gross). 

Studies show that 95% of all newly constructed natural gas combined cycle power plant units meet the proposed standard without any add-on controls.  New coal plants without CCS currently generate around 1,800 lbs CO2/MWh gross.  Based on existing technology, the only way new coal plants could meet the 1,000 lbs standard would be through CCS.

Other key points:

  • Existing plants that begin construction in the next 12 months would be grandfathered (won’t have to meet the standard);
  • Coal plants could be built without CCS if they add it later and the average CO2 emissions over a 30 year period equal the standard.; and
  • The rule does not cover existing coal-fired power plants

Cheap Natural Gas Behind EPA’s Proposed Rule

In releasing the proposed rule, EPA provided a Regulatory Impact Analysis which projected that the rule would be very little negative effect on the cost of electricity or jobs due to low natural gas prices. The chart below shows EPA’s analysis of future natural as prices even accounting for the increased use for electric generation.

 

EPA states in its analysis that market forces have already shifted toward construction of natural gas electricity generating units, in part, due to recent technology used to access deposits of natural gas in the Marcellus and Utica shale formations. 

Under current and foreseeable future market conditions affecting new capacity
additions, gas-fired generating technologies can produce electricity at a lower levelized cost than coal-fired generating technologies, and therefore utilities are expected to rely heavily on combustion turbines and combined cycle plants using natural gas when they do need to expand capacity during the time horizon considered for this analysis. Current and projected natural gas prices are considerably lower than the prices observed over the past decade, largely due to advances in hydraulic fracturing and horizontal drilling techniques that have opened up new shale gas resources and substantially increased the supply of economically recoverable natural gas.

Because the large shale deposits have kept natural gas prices low, EPA finds no real impact from its proposed rule mandating CCS on new coal plants.

One has to ask the question of what happens if the dynamics on natural gas turn out differently.  What if demand increases dramatically or anticipated capacity is much lower?  Will EPA reconsider its carbon standard on new coal plants? 

The rule presents somewhat of a risky proposition by relying on an unproven technology- CCS.  So long as cheap natural gas remains, utilities will have very little incentive to really invest in CCS.

On February 24th, U.S. EPA announced that it would keep in tact the greenhouse gas (GHGs) thresholds for when federal permitting requirements would be triggered.  In announcing that it would not ratchet down the trigger thresholds, EPA said state permitting authorities need more time to develop proper infrastructure as well as expertise in GHG permitting.

Under EPA’s Tailoring Rule, EPA put in place much higher thresholds for when federal permitting would be triggered than appear in the Clean Air Act.  The Act says any source with emissions of a regulated pollutant of 100/250 tons per year (tpy) should obtain a federal permit.  This threshold would apply to GHGs but for the Tailoring Rule.

EPA said that applying 100/250 tpy triggers would result in hundreds of thousands of federal permits.  Therefore, to avoid these "absurd results" EPA relaxed the standard through the Tailoring Rule.  Step 1 of the Tailoring Rule applied to sources that trigger federal permitting anyway.  Step 2 instituted a 100,000 tpy threshold for GHGs emitting from new sources and existing sources and any increase of 75,000 tpy of GHGs from existing sources would trigger permitting.

In Step 3 of the Tailoring Rule EPA was to examine the progress the states made in implementing the new trigger thresholds for GHGs.  EPA said it would consider whether to lower the threshold to 50,000 tpy. 

EPA’s Step 3 Keeps 100,000 TPY and 75,000 TPY Triggers in Place

Under EPA’s proposed Step 3 rule, new facilities with GHGs emissions of 100,000 tons per year (tpy) of carbon dioxide equivalent (CO2e) will be required to obtain a federal air permit (known as a "PSD permit").  Existing facilities that emit 100,000 tpy of CO2e and make changes that increase the GHG emission by at least 75,000 tpy CO2e will also trigger a PSD permit. Facilities that must obtain a PSD permit anyway in order to include other regulated pollutants, must also address GHG emission increases of 75,000 tpy or more of CO2e. New and existing sources with GHG emissions above 100,000 tpy CO2e must also obtain operating permits.

The proposal is in the 45 day public comment period after it is published in the federal register.  There will also be a public hearing on March 20, 2012.

EPA’s Walks Tightrope in Administering the Tailoring Rue

In my last post, I discussed the current legal challenge to EPA’s climate change regulations, including the Tailoring Rule.  I pointed out that the challenge to the Tailoring Rule is the most likely to succeed because EPA claims it can re-write a statute (the Clean Air Act) through regulation.

In arguing it has the authority to change the trigger standards in the Clean Air Act through rulemaking, EPA points to the legal theory that applying the statutory thresholds (100/250 tpy) would result in absurd results- thousands of permits that would flood both EPA and the states. 

The tightrope EPA is walking is that, even if it has the legal authority to support the Tailoring Rule, it must still eventually ratchet down the GHG triggers to 100/250 tpy.  In an election year, it was highly unlikely EPA would have moved the thresholds down to 50,000 tpy of CO2e in Step 3 of the Tailoring Rule as EPA previously suggested it might do. 

EPA made the right choice.  However, EPA action comes at the same time when the Tailoring Rule is being challenged in federal court.  The Court may be less likely to buy EPA’s argument that it will get to the 100/250 thresholds eventually when it decided to keep in place the initial thresholds and not demonstrate progress toward reaching the statutory thresholds.. 
 

The future direction of climate change regulation in the United States will turn on the decision of the U.S. Court of Appeals for the District Court of Columbia (D.C. Circuit) following two days of oral argument.  A decision is expected as soon as this June..  There is no doubt that this may be the most significant environmental decision since the Supreme Court’s ruling in Massachusetts v. EPA in which the Court determined CO2 and other greenhouse gases (GHGs) were a "pollutant" under the Clean Air Act.

EPA Climate Change Strategy

Following the Supreme Court’s decision, EPA launched a major regulatory effort pertaining to control and reduction of greenhouse gases. Those regulations include:

  • Endangerment Finding-  EPA’s determination that GHGs are a threat to public health and welfare and, therefore, should be regulated under the Clean Air Act
  • Tailpipe Rule- establishes GHG emission standards for light-duty vehicles
  • Application of GHG to federal permitting requirements– inclusion of GHGs as a pollutant to be considered in federal permitting such as New Source Review (NSR)
  • "Tailoring Rule"–  EPA’s attempt to reduce the number of sources covered under the federal permitting requirements for GHGs by raising the trigger thresholds

All of the industry challenges to U.S. EPA’s major rulemaking efforts were consolidated into a single appeal- Coalition for Responsible Regulation Inc. v. EPA.  The coalition includes oil & gas, manufacturing, construction, chemical industry, other industry and select states. 

The two most significant challenges relate to the Endangerment Finding and EPA’s Tailoring Rule.

Argument Involving the Endangerment Finding

In order for EPA to regulate GHGs through tailpipe emission standards, the Agency first had to make the determination that GHGs threaten public health and welfare. (i.e. the "Endangerment Finding").  The Coalition challenged EPA finding which goes to the core of whether EPA should be regulating GHGs under the Clean Air Act.

Comments from the Judges during the argument would suggest that industry has an uphill battle in successfully challenging EPA’s decision. 

The attorney representing the Chamber argued that EPA should have considered the fact that people will simply adapt by migrating to cooler climates.  He argued that if people migrate there may be no danger to public health. 

Judge Tatel responded "How can the they [EPA] predict that migration patterns would be sufficient to overcome danger."  He also suggested that under the theory offered, EPA shouldn’t regulate pollutants as a carcinogen because some day there may be a cure for cancer.

 It seems unlikely the Court is going to second guess the Agency’s evaluation of the science behind the endangerment finding.

Arguments over Tailoring Rule

 If the challenge to the Endangerment finding goes at the science behind EPA’s regulations, the challenge to EPA’s tailoring rule goes to how the Agency proposes to implement its regulations.  As discussed on this blog before, while the challenge to EPA Tailoring Rule may be strong, it is a high-stakes gamble due to the uncertainty if the Coalition wins.

The argument is strong because the Clean Air Act itself contains the trigger for when a emissions of a pollutant are high enough to fall under federal air permitting regulations such as NSR.  The standard is 250 tons per year.

If 250 tons per year were to be applied to GHGs, thousands of sources would be regulated.  Even office buildings could require a federal air permit due to their energy use. 

EPA recognizing the "absurd" results of using the 250 ton per year threshold for GHGs, tailored the trigger level through rulemaking.  EPA said it will only initially regulate sources that emit between 75,000 to 100,000 tons per year of GHGs.  EPA said overtime it would slowly ratchet down the trigger level through rulemaking until it is in sync with the 250 tons per year standard appearing in the Clean Air Act.

The Coalition lawyers argued that EPA’s attempt to re-write the Clean Air Act was clear evidence the Act was not suited to regulate GHGs.  The Coalition argued the EPA re-write was illegal and should be thrown out.

Judge Sentelle said in response " The harm you allege is regulatory burden.  The remedy you seek is a heavier regulatory burden.  That doesn’t even make good nonsense."

High Stakes Gamble

The Coalition may be on the right side of the law when it says EPA does not have the power to rewrite the Clean Air Act.  However, they are gambling that this will force Congress to Act to address the Supreme Court’s decision in Massachusetts v. EPA.  The Coalition wants Congress to remove GHGs as a pollutant under the Clean Air Act.

With gridlock in Washington it just seems very unlikely that this will happen.  What could be left if the challenge to EPA’s Tailoring Rule is successful, is a 250 ton per year standard that applies to GHGs.  This is something even the EPA was desperately trying to avoid.

 

In early November, the EPA sent to OMB the next significant regulation governing greenhouse gas emissions.  Under the latest rule, EPA would establish CO2 emission standards for new and modified coal-fired power plants. 

The new rule is titled the Greenhouse Gas New Source Performance Standard (NSPS) for Electric Utility Steam Generating Units.  The NSPS standards are based on the best demonstrated technology (BDT) that has been demonstrated to work in a given industry, considering economic costs and other factors. The standard can vary from source to source. It could be a numerical emission limit, a design standard, an equipment standard, or a work practice standard.

The proposal will clearly be the next in an ongoing debate regarding EPA regulations and jobs. 

EPA States:

“EPA will work with OMB throughout the interagency review process and will issue the proposal when this review is complete,” said EPA spokeswoman Betsaida Alcantara. “EPA has engaged in an extensive and open public process to gather the latest and best information.”

In a story in the LA Times, the Heritage Foundation attacked the latest EPA proposal:

"We don’t believe that unelected bureaucrats should be doing what Congress was elected to do," said Nicolas Loris, policy analyst at the Heritage Foundation, which has battled the EPA regulation of carbon from the outset. “The economic costs of regulation by the EPA or by a cap-and-trade system far outweighs any environmental benefit we would get from these measures."

Asked how the Heritage Foundation would like to see this problem addressed, he added: "First we need to step back and look at what the real problem is: CO2 isn’t black smoke that is emitted from factories; it’s a colorless, odorless gas. Does it contribute to global warming and climate change? Sure. But it’s the role of Congress to figure out the best way to address those effects in a way that protects our economy."

Inability of Congress to Act Leave Void EPA Has Authority to Fill

In Congress, there appears to be no pragmatists anymore, especially when it comes to EPA regulatory authority.  The approach from either side tends to be all or nothing..

With Congress deadlocked the policy vacuum will be filled.  In this case, EPA has the authority under the Clean Air Act to regulate greenhouse gases (GHGs).  The Supreme Court in Massachusetts v. EPA already declared CO2 and the other GHGs a "pollutant" under the Clean Air Act that can be regulated.

In fact, EPA has been sued multiple times to exercise this authority.  As long as the Clean Air Act remains unchanged, the Court cases are generally going to support EPA’s authority.  While the Heritage Foundation is correct that CO2 is much different than the other "pollutants" regulated under the Clean Air Act, unless Congress acts to change the law to treat it differently EPA will and is legally obligated to implement new regulations. 

D.C. Circuit Panel Selected to Hear Challenges to EPA’s Existing GHG Rules

While EPA is poised to issue its NSPS to control CO2 from power plants, its earlier GHG regulations have been challenged.  There are two main GHGs rules being challenged:

  1. EPA’s "endangerment finding"– a prerequisite to regulating GHGs from motor vehicles.  In making the finding, EPA was required to review the latest science and determine whether GHGs endanger human health and the environment. 
  2. EPA’s "Tailoring Rule"– EPA recognizes that CO2 is emitted in orders of magnitude greater quantities compared to other Clean Air Act pollutants.  In an effort to make the existing structure of the Clean Air Act fit GHGs, EPA issued the tailoring rule which raised the trigger thresholds for certain federal permitting requirements (i.e. New Source Review) even though the triggers appear in the Clean Air Act itself.

The panel in the D.C. Circuit that will be hearing these challenges was recently announced.  An excellent article on Greenwire discusses the three judges on the D.C. Circuit panel.  The judges are Chief Judge David Sentelle, a conservative appointed by President Reagan, and two Clinton appointees: Judge Judith Rogers and Judge David Tatel. From the article:

All three had some involvement when the court tackled Massachusetts v. EPA, the case that — once it went up to the Supreme Court — ultimately gave EPA the authority to regulate carbon emissions.

Lawyers familiar with the litigation over the rules say the panel probably favors EPA based on each judge’s record in environmental cases and regulatory cases in general.

Overall, the panel "will examine the arguments fairly but rigorously," said Jonathan Adler, who heads the Center for Business Law and Regulation at Case Western Reserve University School of Law.

"This may appear to be a panel predisposed to support the EPA, but it is also a panel that is not likely to let the EPA get away with slipshod arguments," he added.

The "tailoring" rule, which interprets the Clean Air Act in such a way that only major polluters are required to obtain permits for greenhouse gas emissions, is the one that is viewed to be most vulnerable. Critics say it essentially rewrites the Clean Air Act.

Given the scientific foundation that supports the conclusions climate change is real and humans are contributing to the problem, it is unlikely that the Court will overturn EPA’s Endangerment Finding.  However, as discussed in the article and in prior posts, EPA "Tailoring Rule" is based on a house of cards.  A fundamental axiom of the law is you cannot rewrite a statute through rulemaking.

 

Today, the U.S. Supreme Court released their opinion in AEP v. Connecticut  in which the Court held that the Clean Air Act ("CAA") and the EPA actions on regulating greenhouse gas emissions displaced any federal common-law right to seek greenhouse gas emission reductions.  The suit was filed by Eastern States and non-profit land groups against coal-fired power plants in an attempt to have court order emission reductions. Businesses were deeply concerned that if the Court allowed the nuisance case to proceed, the courts would be flooded with climate change litigation.

Legal Ruling

The States had argued their nuisance claims were not displaced because EPA had not yet established final emission standards.  The Court stated the displacement test is simply "whether the statute speaks directly to the question at issue." In other words, if the statute give authority to act that is enough to displace federal common law.

The Court noted that in  Massachusetts v. EPA it had previously held:

  • Emissions of carbon dioxide qualify as air pollution subject to the CAA. 
  • CAA Section 111 gives authority to EPA to list categories of stationary sources that cause or contribute significantly to air pollution that "endangers public health and welfare"  (categories would include coal-fired power plants)
  • Once a category is listed under Section 111, EPA must establish performance standards for new or modified sources within that category
  • CAA also will require regulation of existing sources in the category
  • If EPA fails to act in setting standards, States and private parties may petition for a rulemaking on the matter, and EPA’s response will be reviewable in federal court.

For these reasons, the Court held it was clear the CAA "speaks directly" to the emission of carbon dioxide from the defendant’s coal-fired power plants.

Implications of Today’s Ruling

  1. Prevents "Flood" of Federal Nuisance Claims- Obviously today’s ruling is very good news for those who feared the courts could be flooded with climate change litigation under federal common law. 
  2. Possible State Nuisance Claims–  The Court notes that the issue before them was limited to actions under federal nuisance, it does not address nuisance claims based upon state law.  The Supreme Court sent the case back to the Second Circuit to determine if state nuisance claims are pre-empted by the CAA.  This leaves open a huge issue that could likely result in yet another Supreme Court ruling.
  3. EPA v. Courts-  In its opinion the Supreme Court stated its preference for EPA to decide appropriate emission reductions, not the courts.   The Court said EPA, with all its expertise, is in a better position to balance competing interests and establish standards. 
  4. Tacit Endorsement of EPA Regulatory Authority- The key battle right now are EPA’s regulatory actions to move forward with emission standards for greenhouse gases.  Some have asserted EPA’s actions demonstrate the Agency is "out of control."  The Supreme Court’s decision makes clear, once again, EPA has the authority to regulate greenhouse gases.  Also, the Court notes repeatedly, if EPA fails to act in establishing those standards it can be compelled to act by private parties.