On April 13th, President Obama issued an Executive Order creating a federal inter-agency task to coordinate efforts on oversight of horizontal well drilling and hydraulic fracturing for natural gas.  Method such as hydraulic fracturing (i.e. "fracking") have allowed access to massive new deposits of natural gas bring the price down for natural gas to historic lows.  While fracking has resulted in a huge increase in production, the drilling method continue to generate environmental concerns.

Thus far, the States have really taken the lead in development of new regulations and requirements for fracking.  In my last post I discussed Ohio’s recent legislative proposal. Now, the federal government will attempt to coordinate its efforts regarding oversight and planning associated with unconventional natural gas drilling techniques such as fracking.  The Executive Order creates the inter-agency work group for the following purposes:

  1. Coordinate agency policy activities, ensuring their efficient and effective operation and facilitating cooperation among agencies, as appropriate;
  2. coordinate among agencies the sharing of scientific, environmental, and related technical and economic information;
  3. engage in long-term planning and ensure coordination among the appropriate Federal entities with respect to such issues as research, natural resource assessment, and the development of infrastructure; 
  4. promote interagency communication with stakeholders; and
  5. consult with other agencies and offices as appropriate.

The Work Group is made up of 13 federal agencies and departments, including: U.S. EPA, U.S. Dept. of Transportation, Dept. of Interior, Dept. of Energy, and others. 

It appears that industry supports the working group as a potential mechanism to avoid applicative regulation.  This from the Washington Post:

“We have called on the White House to rein in these uncoordinated activities to avoid unnecessary and overlapping federal regulatory efforts and are pleased to see forward progress,” said Jack Gerard, president and CEO of the American Petroleum Institute, the largest lobbying group for the oil and gas industry.

Gerard and other industry leaders met with White House officials Friday.

Dave McCurdy, president and CEO of the American Gas Association, said the new working group will help promote consistency among administration policies.

In it is interesting that the Washington Post and other news outlets reported the purpose of the working group as to "coordinate new regulation."  However, reading through the five stated purposes of the working group none of them even mention regulation. Rather, it appears as if the purpose of the group is to share information, not coordinate regulatory efforts.

In my experience working with such federal inter-agency workgroups associated with the Great Lakes, federal agencies were reluctant to give up their own turf.  Unless the Administration takes an active role in working group it seems very unlikely the agencies, on their own, will coordinate their regulatory efforts.. 

 

 

Right now there is no other topic in Ohio that generates more news coverage than horizontal gas drilling (or "fracking").   It seems a day doesn’t go by without a new news story regarding fracking or related developments.

Ohio has seen oil & gas wells installed for well over a hundred years.  However, until recently huge deposits of natural gas in shale formations deep beneath the ground were not accessible.  Now, using new technology (i.e. fracking) those deposits can be tapped.  The implications for Ohio are certainly significant.

Along with the tremendous opportunity that access to the Utica Shale deposits present, come concerns regarding protecting the environment, including ground water resources. Many have said that Ohio’s out dated oil & gas laws need to catch up with today’s technology.

Senate Bill 315

In order to address these concerns, on March 22nd Governor Kasich released Ohio Senate Bill 315 (S.B. 315).  While the bill is dubbed an energy bill and does touch on other subjects, its principal focus is new regulation of horizontal gas well drilling.

The bill also attempts to increase regulations on deep well injection as a means of disposal of massive amounts of fracking wastewater and/or brine.  In the aftermath of the controversy as to whether disposal of fracking wastewater led to earthquake(s) in Northeast Ohio, the bill adds to the growing list of new regulations governing this method of disposal.

Major New Requirements in S.B. 315 Governing Horizontal Wells or "Fracking"

  • Creates a new oil & gas permit to be issued by the Ohio Department of Natural Resources (ODNR) for "horizontal wells:"
  • The new horizontal well permit application will require new information that the old oil & gas permit applications never addressed, including:
    • A $15,000 permit fee;
    • Road Use Maintenance Agreements–  will require the applicant to provide a copy of an agreement with local government(s) concerning maintenance of roads, streets, and highways;
    • Source Water Identification– must identify the ground water or surface water source for the production of the well.  This is requirement applies to horizontal well permits because they use millions of gallons of water;
    • Residential Well Sampling-  must show the sample results of all water wells within 1,500 feet of the proposed well prior to commencement of drilling;
    • Insurance Coverage-  must obtain $5 million in coverage for injury to persons or property.  Also, must include a "reasonable level" of coverage for any pollution or contamination that may occur as a result of the drilling, operation, or plugging of the owner’s wells. (See discussion below regarding insurance)
    • Disclosure of fluids used in wells– one area of controversy associated with fracking is the use of chemicals along with the water during the drilling and fracking process.  Under the bill, the owner of the well will have to disclose all chemicals used and the amount used during service, operation, and plugging of the well.  These compounds will be posted on ODNR’s web page.
    • Fresh Water Impoundments–  ONDR is given rule making authority to regulate location and construction of fresh water impoundments used in fracking.

Major New Requirements Governing Deep Well Injection

  • S.B. 315 increases disposal fees and includes new regulations governing oil & gas injections wells, including:
    • Doubles the fee for each barrel of substance generated locally that is disposed through deep well injection;
    • Raises the fee by five times the amount (20 cents to $1 dollar) for out of state substances shipped in for disposal in Ohio deep wells.  This is likely to address the concern Pennsylvania is shipping its wastewater associated with fracking to Ohio for disposal;
    • Increases the information that must be submitted by a brine/wastewater transporter to be properly certified by the State; and
    • Owner of deep well must obtain list from transporter of brine or wastewater generated through fracking a list of all chemical compounds.

Key Issue under S.B. 315:  How Much Environmental Insurance will be Required?

The philosophy of the bill seems to be requiring data collection prior to commencing the fracking process.  What data is being collected?  The current levels of contamination, if any, in existing residential wells within 1,500 feet prior to horizontal drilling.  Followed by disclosure of all the chemicals compounds used in the fracking process.  

The hope is that the information  (i.e. baseline record) could be used to determine if fracking contaminated groundwater or drinking water supplies.  Simply compare the old well samples to new sample, post fracking, and see if any of the disclosed chemical compounds are detected.

Assume it is demonstrated that contamination did occur as a result of fracking.  The bill requires a "reasonable level" of insurance coverage be provided for environmental contamination.  The determination of "reasonable" will be key issue.

It is likely (and would make good business sense) if you were an oil & gas driller to use the corporate form to try and limit liability if something goes wrong.  This means it is quite possible the only funds that may be available to address contamination will be insurance proceeds.    Therefore, how much insurance coverage is required will be a key issue. 

EPA is proposing a whole series of new inspection and testing requirements for underground storage tanks (USTs).  By expanding the types of UST systems covered under the rules, EPA is  proposing to extend application of all UST regulations to entities not previously regulated, such as hospitals and universities.

EPA first promulgated regulation governing underground storage tanks (USTs) in 1988 (40 CFR Part 280). This regulation set minimum standards for new tanks and required owners and operators of existing tanks to upgrade, replace, or close them. The regulations largely covered gasoline dispensing facilities (GDFs).  Now EPA wants to extend these regulations to other UST systems, such as those used for emergency power generators.

EPA has not significantly changed the UST regulations since 1988.  In November 2011, EPA released a proposed UST rule package that would amend the 1988 regulations for the first time in over two decades. 

Basic Purpose of New UST Regulations

EPA states the purpose of the amendments to the UST regulations is to add additional protections to prevent contamination of ground water. The amendments add new requirements in the following areas:

  • new inspection requirements;
  • establish operator classifications and associated mandatory training;
  • establish new standards for when tanks must be replaced; and
  • extend application of the regulations to tanks not previously covered.

Costs Associated with the New Regulations

U.S. EPA performed a regulatory impact analysis for the new requirements for USTs.  It asserts that the total cost for businesses to comply with the new requirements is $210 million.  EPA asserts that these costs are offset by the avoided clean up costs associated with spills that the new requirements are projected to prevent. 

In weighing compliance costs with spill prevention, EPA says there is a net benefit to businesses. Its hard to see that businesses will view these new requirements as an overall cost benefit.  In addition, the regulations add a new layer of paperwork for every tank covered.

EPA estimates it will cost each facility approximately $900 per year to comply with the new requirements.  However, that figure does not capture the costs that may be incurred by entities that will be covered by the UST regulations for the first time.

Details on the Proposed Changes to the 1988 UST Rules

Along with the rule package, EPA put together a chart explaining the changes to the 1988 rules.  Some of the major changes worth noting are as follows:

  1. Extends Regulations to New USTs-  the proposed rule eliminates "deferrals" that had exempted certain tank systems from the UST rules.  Systems that would be covered include: emergency power UST systems, airport hydrant fuel distribution systems, field-constructed tanks, and certain waste-water treatment tanks systems.
  2. National Inventory of USTs-  All owners of USTs covered by the rule are required to submit a one-time notification of how many USTs they have, where they are located, when they were installed, and other identifying and compliance information.
  3. Creates Operator Classifications and Mandatory Training– the new regulations create three classifications of operators (A, B and C).  An individual must be designated for each of the three classes which cover employees with managerial, maintenance and day-to-day operational duties.. Each operator classification is required to be trained on minimum defined areas.  Records must be maintained at each facility to show the operator training requirements have been satisfied;
  4. New Tanks Must Have Secondary Containment and Under-Dispenser Containment (UDC)-  all new and replaced UST systems must have secondary containment and UDC.
  5. Spill and Overfill Inspections and Testing-  Overfill equipment must be tested regularly.  Spill prevention and release detection equipment must be tested regularly.  Walk through inspections will be required to check on condition of equipment.  The rules would phase out vapor monitoring and groundwater monitoring as release detection methods.
  6. Replacement of UST Once Lining Fails-  The 1988 UST regulations allowed lining as an upgrade option to extend the life of some tanks.  Under amendment, once lining fails the UST must be taken out of service and replaced.
  7. Testing After Repairs-  Testing of the system is required after any repair to spill and overfill equipment and secondary containment.  Even if the repair was due to general maintenance and not related to a release.
  8. Standards for Tanks Holding Ethanol or Biodiesel–  EPA is concerned certain chemicals are degrade tanks more quickly.  Therefore, any tank holding greater than 10% ethanol or 20% biodiesel must demonstrate compatibility.  The proposed regulations set forth standards for determining compatibility. 
  9. States Given Three Years to Adopt New Standards

Comment Period Extended

The original rule package was issued on November 18, 2011.  EPA decided to extend the comment period until April 16, 2012. 

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 March 20, 2012, the U.S. Supreme Court handed down the much anticipated decision in Sackett v. EPA.  The Court rejected U.S. EPA’s claims that its administrative enforcement orders were not subject to pre-enforcement review.  The Court’s decision provides a new tool to challenge EPA administrative compliance orders. 

Synopsis of the Case

The Clean Water Act prohibits filling of wetland without a permit.  The Sacketts own a .63 acre parcel of land on which they hoped to construct a home.  EPA said that the Sacketts had filled wetlands as part of their development without a permit. 

EPA decided to take enforcement by issuing an administrative compliance order directing the Sacketts to remove the fill.  If the Sacketts failed to comply with EPA’s order they could potentially be liable for penalties of $37,500 for each day of non-compliance with the order and potentially an additional $37,500 per day for the underlying Clean Water Act violation.

The Sacketts attempted to appeal the administrative order in Court to challenge EPA’s determination they filled regulated wetlands.  EPA argued that the Sacketts were not entitled to any pre-enforcement review of the administrative order. 

Lower Courts Ignore the Legal Presumption of a Right of Appeal

The Administrative Procedure Act ("APA") sets the standards for when administrative actions of federal agencies are subject to review or judicial appeal.  The APA contains a presumption that  federal statutes allow for judicial review of agency actions.  That presumption can be overcome if: 1) there is an explicit bar to pre-enforcement review in the statue; or 2)  the presumption "may be overcome by inferences of [congressional] intent drawn from the statutory scheme as a whole." 

The Clean Water Act does not contain an explicit bar to pre-enforcement review (such a bar does exist under CERCLA- the federal Superfund law).  Therefore, EPA had to argue the bar can be inferred from congressional intent.

Both the District Court and Appeals Court sided with EPA holding that a bar to review could be inferred from the congressional record and the language in the the Clean Water Act.

Supreme Court Unanimously Disagrees

Before determining whether there was a bar to appeal, the Court had to determine whether the administrative action amounted to a final order.  The Court found that the order issued by EPA had all the hallmarks of a final order, including:

  • It determined the rights of the party– in this case, the Sacketts were required to restore the wetland;
  • Legal consequence flow from the order- the Sacketts were subject to penalties if they failed to comply;
  • The order is final– EPA did not provide the Sacketts a meaningful opportunity to challenge the order

After finding the order was final, the Court then rejected the lower courts finding that the history and language of the Clean Water Act suggested there should be no pre-enforcement review of orders.  The Court held:

"APA’s presumption of judicial review is a repudiation of the principle that efficiency of regulation conquers all." and

There is "no reason to think that the [Clean Water Act] was uniquely designed to enable the strong-arming of regulated parties into ‘voluntary compliance’ without the opportunity for judicial review- even judicial review of the question whether the regulated party is within the EPA’s jurisdiction."

It is interesting that both lower courts sided with EPA, but yet the Supreme Court unanimously sided with the Sacketts.  Its difficult to understand how such a split could occur.

Implications

Clearly, the Courts ruling gives attorneys representing regulated parties who are the subject of an EPA unilateral compliance order a tool to challenge the merits of those orders.  Certainly, allowing such a review is a clear victory and certainly seems to comport with logic.  The right to challenge EPA orders also likely extends to other environmental statutes that do not contain an explicit bar to pre-enforcement review, including orders issued related to hazardous waste (RCRA) and the Clean Air Act.

However, the standard for overturning an EPA order is very difficult to meet.  In addition, the Supreme Court’s decision is unclear as to whether penalties continue to amass while litigation proceeds.

Under the APA, an EPA action is entitled to deference and can only be overturned if it is demonstrated that the EPA acted in an "arbitrary and capricious" manner or "otherwise in violation of the law."  That is a pretty tough hurdle to clear. 

Also, the Court didn’t address whether EPA could be entitled to penalties for non-compliance during the appeal let alone whether EPA could be entitled to double penalties-  one set of penalties for failing to comply with the EPA’s order at $37,500 per day and a second for violating the Clean Water Act (also at $37,500 per day).   Therefore, a party could be risking up to $70,000 per day to continue its challenge of the EPA’s action. 

Until another court rules EPA is not entitled to collect such large penalties during the appeal, the deck is still pretty much stacked in EPA’s favor or in the Court’s words, EPA can still "strong arm" regulated parties.

Ohio EPA has finalized changes to its asbestos regulations which govern notification and work practices for asbestos abatement.  Ohio EPA described the changes as minor.  However, one change in particular could impact asbestos abatement contractors. 

Ohio EPA modified the definition of "friable asbestos material" appearing in Ohio Administrative Code Section 3745-20-01.  The only change was to add the following underlined language to the definition:

"Friable asbestos material" means any material containing more than one per cent asbestos by area, as determined using the method specified in 40 CFR Part 763, Subpart E, Appendix E, Section 1 Polarized Light Microscopy (PLM), that, when dry can be crumbled, pulverized, or reduced to powder by hand pressure.  If the asbestos content is less than ten percent as determined by a method other than point counting by Polarized Light Microscopy, verify the asbestos content by point counting using Polarized Light Microscopy.  Any category I or category II asbestos containing material that becomes damaged from either deterioration or attempts at removal or abatement resulting in small fragments the size of four square inches or less shall also be considered friable or RACM.

According to papers Ohio EPA filed as part of the rulemaking process, this rule change is a simple clarification of the definition of RACM and friable Asbestos Containing Materials (ACM).  Ohio EPA also asserts U.S. EPA has a similar interpretation.

However, this sentence does not appear in the federal rules found in 40 CFR 61.141.  Therefore, it is easy to read this as an expansion of what constitutes "friable asbestos material."  In addition, Ohio EPA statement doesn’t exactly appear consistent with guidance provided by U.S. EPA on the subject:

Category I non-friable ACM must be inspected and tested for friability if it is in poor condition before demolition to determine whether or not it is subject to the Asbestos NESHAP. If the ACM is friable, it must be handled in accordance with the NESHAP. Asbestos-containing packings, gaskets, resilient floor coverings and asphalt roofing materials must be removed before demolition only if they are in poor condition and are friable.

Ohio EPA may say the four square inches referenced in the rule is an indication the material is in poor condition.  The rule does not say where the line is drawn.  What if only one piece is damaged with pieces less than four square inches?  Does that mean ALL the floor tile must be remove prior to demolition?

In talking with asbestos abatement contractors, this rule change has the potential to significantly impact demolition and renovation projects.  Under the new definition, ACM flooring tile and other projects may need to be removed by a licensed asbestos abatement contractor prior to demolition.  Also, roofing project that involve ACM roofing materials may also have to be performed by a licensed asbestos abatement contractor. 

If either ACM floor tile, roofing material or other materials are damaged during the removal process or demolition, the contractor and the owner of the building risk a possible citation for failing to remove friable asbestos material prior to demolition.  OAC 3745-21-04(A)(1)(a)

It is also interesting to note that Ohio EPA indicated in the rule filing there will be no impact on revenues or expenditures due to increased compliance costs.

It is my understanding that Ohio EPA will be performing in-house training of its inspectors to ensure consistency in applying the rule change. However, it may have been more prudent to provide greater clarity in the rule itself. 

Representative Wachtmann has introduced H.B 473 which will implement Ohio’s regulatory program under the Great Lakes Compact.  H.B. 473 follows last summer’s veto by Governor Kasich of H.B. 231 which was criticized by environmental groups and former Governor Taft and Senator Voinovich as not protective enough of Lake Erie.

The Great Lakes Compact was passed by the Great Lake states as well as Congress. The Compact sets regional standards governing water withdrawals and diversions from the Great Lakes.  With 20% of the worlds fresh water, the Great Lake states viewed the Compact as critical to protecting their fresh water resource as pressure mounts to divert water to other regions or countries facing dwindling supplies of fresh water.

H.B. 473 certainly marks a significant departure from H.B. 231 on several important points.  The most notable changes relate to the trigger levels for needing a permit and the standard for determining when a withdrawal could have an adverse impact.

Trigger Levels for Permitting

The main criticism of H.B. 231 was that it contained permit trigger thresholds which were higher than most of the other Great Lakes States which have already passed legislation implementing the Great Lakes Compact..  

Trigger Thresholds for Water Withdrawal Permit

(millions gallons per day – MGD)
Triggers H.B. 231 H.B 473
From Lake Erie  5 MGD averaged over 90 days  2.5 MGD
 From Streams that flow into Lake Erie or groundwater  2 MGD averaged over 90 days  1 MGD
From High Quality Streams 300,000 gpd averaged over 90 days 100,000 gpd

H.B. 473 significantly ratchets down the trigger thresholds for needing a water withdrawal permit. Under the bill, Ohio would have lower thresholds than Indiana and comparable to Michigan’s.  It will still have higher thresholds than Pennsylvania or New York. 

However, all other states allow averaging over at least 30 day period.  The current version of H.B. 473 does not allow averaging.  This is likely to be an area of debate moving forward. 

The Compact itself allows averaging.  It seems unreasonable to trigger a permit if on one day a pump installed has the capacity to withdrawal 100,000 gpd from a high quality stream regardless of whether that capacity is actually going to be utilized.  This is particularly the case when the permit program exams impacts to Lake Erie and not the stream itself.

Definition of "Adverse Impact"

The State must deny a permit if the water withdrawal is determined to cause an "adverse impact" on Lake Erie.  H.B. 473 eliminated the controversial definition of "adverse impact" that appeared in H.B. 231.

H.B. 231 defined adverse impacts in the negative- anything at or below 90 mgd from the Lake or 45 mgd from groundwater was presumed not to cause an impact.  H.B. 473 leaves the definition up to future rulemaking by the Ohio Department of Natural Resources (ODNR).  The bill calls for a study commission which will make recommendations on a definition to the Legislature. 

Overall, H.B. 473 provides broader rulemaking authority to the ODNR.  This marks a significant departure from H.B. 231 which provided virtually no rulemaking authority.  H.B. 231 was meant to provide clarity by setting forth all the important provisions in statute leaving very little to future rulemaking.

H.B. 473 should be less controversial than H.B. 231 which was vetoed by Governor Kasich after virtually every major in Ohio paper issued editorials opposing the bill.  While certain provisions will be debated, H.B. 473 moves Ohio much closer to the other Great Lakes States in how it regulates future water withdrawals from the Great Lakes Basin.

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.

 

U.S. EPA’s Environmental Audit Policy encourages companies to self-evaluate their compliance with environmental requirements and disclose any violations to EPA.  As an incentive to disclose violations to EPA, the Audit Policy provides up to 100% forgiveness of gravity-based civil penalties if certain conditions are met. 

U.S. EPA’s audit policy contains nine (9) conditions that must be met in order to qualify for the penalty reduction incentive for self-disclosure.  Those nine conditions include:

1. Systematic Discovery–  There are two ways to qualify under this condition – perform an environmental audit or utilize a compliance management system to review compliance. If a company fails to meet this condition, EPA’s policy still may provide a 75% reduction in gravity-based civil penalties if the other eight conditions are satisfied.
2. Voluntary Discovery– The violations disclosed must not have been otherwise legally required to be disclosed.  (Example: Title V Air Permits require covered facilities to certify compliance on an annual basis with all requirements in the Title V air permit.  Therefore, a Title V facility would not qualify for the incentives under the EPA Audit Policy if it disclosed non-compliance with permitting requirements with its Title V permit.  Note:  EPA does have a limited exception for new owners of Title V facilities.)
3. Prompt Disclosure–  If you decide to disclose violations uncovered to try and secure gravity-based penalty reductions, the company must disclose all violations within 21 days of discovery
4. Independent Discovery and Disclosure– The audit cannot have been performed and/or the violation cannot have been discovered after a federal, state or local investigation, etc.
5. Correction and Remediation–  The violations must have been corrected within 60 days.
6. Prevent Recurrence–  The company must take steps to prevent recurrence of the violations. 
7. No Repeat Violations–  The same violations must not have occurred within 3 years at the same facility or within 5 years if EPA determines there is corporate pattern of violations.
8. Certain Violations Excluded–  The two types of violations are excluded from any penalty forgiveness– violations that have the potential to cause serious harm or if the company violates an order or agreement with EPA.
9. Cooperation-  The company must provide requisite or requested information to EPA.

Why Consider Using EPA’s Audit Policy?

If s company can successfully establish all the conditions under EPA’s audit policy for forgiveness of gravity-based civil penalties, the company may be able to avoid very large civil penalties that otherwise would have been paid if an EPA inspector detected the violations first.

One common area of environmental compliance that companies audit is Emergency Planning and Community Right to Know Act (EPCRA) reporting requirements.  As a prime example of the benefits that may flow from using the U.S. EPA’s Audit Policy:

This February U.S. EPA entered into a settlement with a New Cingular Wireless PCS LLC.   The company found violations at 642 sites in 35 different states through two separate environmental audits.  According to the settlement, the company avoided $6.7 million in projected gravity based civil penalties that EPA otherwise may have pursued if the violations were discovered through EPA inspections versus an audit.  

While there are strong incentives to utilize EPA’s audit policy, there are many issues to navigate. Some of these issues will be the subject of future blog posts on this topic.  Those issues include:

  • Confidentiality of the audit;
  • Establishing the nine conditions;
  • The requirement to report all violations within 21 days
  • Gravity-based penalties versus the potential for assessment of economic benefit penalties