The D.C. Circuit Court of appeals issued a major rebuke to those who believe climate change is no longer relevant in environmental reviews.  In Sierra Club v. FERC, No. 16-1329 (D.C. Cir. Aug. 22, 2017), the Court agreed with environmental groups, including the Sierra Club, that the Federal Energy Regulatory Commission (FERC) failed to adequately analyze greenhouse gas emissions as part of a $3.5 billion dollar natural gas pipeline project.  The project involves construction of a 500 mile long pipeline through Florida.   

FERC Review Authority

The Natural Gas Act (NGA) provides FERC the authority to review and approve interstate pipeline projects, including the environmental impacts associated with the project.  Section 7 of the NGA requires the pipeline owner to obtain a "certificate of public convenience and necessity" from FERC (i.e. Section 7 Certificate).  One component of the Section 7 review is compliance with the National Environmental Policy Act (NEPA) which includes FERC’s preparation of an "Environmental Impact Statement" (EIS).  

The Sierra Club argued that the FERC, in performing it EIS, failed to adequately consider the impacts of emission of greenhouse gases associated with the project.  Specifically, the pipeline would supply natural gas to power plants in Florida which would generate additional greenhouse gas emissions by burning natural gas.  

The Court said NEPA required FERC to consider both direct and potentially indirect impacts from those emissions.  

  • Direct Impacts– quantitative estimate of the downstream greenhouse
    emissions that will result from burning the gas transported by the pipeline or explain in detail why such a estimate cannot be provided;
  • Indirect Impacts- the court did not specify what indirect impacts, which leaves open the question of whether the EIS must analysis whether greenhouse gas emissions will result in more severe storms, agricultural impacts, etc.

Impact of the Decision

First, the decision demonstrates greenhouse gas issues are still alive and well.  FERC must take steps to analyze greenhouse gas emissions as part of its EIS review.  

Second, the decision doesn’t mean the Court took a negative view of natural gas pipelines.  In fact, the Court specifically stated there can be both negative and positive impacts in terms of greenhouse gas emissions from these project.  For example, burning natural gas made available via the pipeline may allow higher emitting coal fired power plants to shut down thereby reducing greenhouse gas emissions overall.

Third, perhaps the biggest impact will be seen on challenges to other projects that must get FERC approval.  The requirement to include evaluation of impacts of projects on greenhouse gas emissions could result in other projects being successfully challenged in Court and may also delay some projects in order to allow required analysis to be included as part of the EIS.

With the surprising and sad news over the weekend of Justice Scalia’s passing, many critical decisions before the Supreme Court suddenly got more interesting. This is certainly the case with the Clean Power Plan. 

Last Week, in the first time in history the Court issued a stay of the effectiveness of the rule while the rule was still under challenge in the lower D.C. Circuit Court of Appeals.  This was a highly unusual move both because the D.C. Circuit denied to grant the stay and because the Court never had taken the step previously.  Many speculated that the Supreme Court’s decision signaled the likelihood that the Clean Power Plan would not survive the legal challenge.

The stay was issued in a 5-4 decision along ideological lines.  It seemed likely that the Court’s ultimate decision as to the legality of the rule would be issued along similar ideological lines.

With Justice Scalia’s passing, the Supreme Court is now split down the middle, with four liberal justices and four conservative justices. 

What this ultimately means for the Clean Power Plan is somewhat uncertain, depending on the timing of the appeal.  First, it appears unlikely the Court will revisit the stay that was issued last week.  This comment appeared in the Atlantic Monthly:

"There is currently no reason to assume the Court will revisit the stay order," said Richard Lazarus an environmental-law professor at Harvard, "It is final as voted by the full Court at the time and is not subject to revisiting any more than any other rule by the Court before the Justice’s passing."

Second, it appears more than likely that the case will be heard by the Supreme Court before a justice can be appointed to replace Justice Scalia.  Based upon the political rhetoric that has ensued since news broke regarding Justice Scalia’s passing, it appears highly unlikely that the Senate will confirm a new appointee by President Obama.  Also, based on current timing, with a decision expected this fall by the D.C. Circuit and a decision next spring by the Supreme Court, it also appears very unlikely the new President will have a replacement Justice confirmed before the Court issues its decision.

I had commented in my previous post on the Supreme Court’s decision to issue the stay that the D.C. Circuit’s decision on the merits regarding the legality of the rule was merely advisory. This comment was based on the assumption the Supreme Court would hear any challenge an render the ultimate decision on the legality.

Assuming no new justice is appointed before the Supreme Court hears the challenge to the Clean Power Plan, the D.C. Circuit Court’s decision would likely decide the fate of the ambitious Clean Power Plan. Assuming no new Supreme Court Justice is appointed, and assuming the Court does vote on the legality of the plan along ideological lines, this could mean the Court would be deadlocked in a 4-4 tie.  If this were to occur, the D.C. Circuit Court decision on the merits would likely be the law of the land.  

The current panel at the D.C. Circuit seems to favor upholding the Clean Power Plan.  The case will be decided by a three judge panel.  Justices Judith Rogers (a Clinton appointee) and Karen Henderson (a George H.W. Bush appointee) have been inclined to vote in favor of EPA’s efforts to regulate greenhouse gases in prior Court decisions.  The third Judge- Sri Srinivasan is an Obama Appointee.

With developments over the weekend, it appears the most significant piece of environmental regulation in decades may have new life.

On August 3rd, the Obama Administration and U.S. EPA released the much-anticipated final Clean Power Plan designed to curtail greenhouse gas emissions to combat climate change.  The regulations promise to be the most comprehensive, complex and costly regulatory program ever launched without specific authorization from Congress.   

How the Plan Works

The final plan calls for a 32% reduction in the amount of 2005-level carbon emissions that existing power plants must eliminate by 2030.  How does EPA achieve the reductions?

Performance Rates

EPA establishes both interim and final CO2 emission performance rates for two subcategories of fossil fuel-fire electric generating units (EGUs):

  • Fossil fuel-fired electric steam generating units (coal and oil-fired power plants); and
  • Natural gas-fired combined cycle generating units

Interim performance rates must be met between 2022 and 2029.  The final emission rate by 2030.

The EPA reviewed prior determinations made under Section 111(d) regarding "best system of emissions reduction" (BSER) that has been demonstrated for a particular pollutant and a particular group of sources by looking at technologies already being used.  

Statewide Goals

The rates were established geographically by applying three different strategies to existing fossil fuel power plants. Those building blocks include the following:

  1. Operate Existing Coal Fired Power Plants More Efficiently- reducing carbon intensity of electricity generation by improving the heat rate of existing coal-fired power plants.
  2. Switch from Coal to Natural Gas-  substituting increased electricity generation from lower-emitting existing natural gas plants for reduced generation from higher-emitting coal fired power plants.
  3. Switch from Coal to Renewable Energy- substituting increased electricity generation from new zero-emitting renewable sources (like wind and solar) for reduced generation from existing coal-fired power plants.

By applying the building blocks to the existing plants, EPA determined the average coal plant can reduce emissions in from 2,160 pounds of CO2 per MWh down to 1,305 pounds/MWh by 2030.  Natural gas combined-cycle plants can go from 894 lbs/MWh to 771 lbs/MWh by 2030.  

The emissions rates are then used to establish state wide goals based upon the mix of existing coal and natural gas power plants in the state.  

States can also elect to use a rate-based goal or a mass-based target.  With mass-based targets, the states will have a total amount of CO2 emissions in 2012 and a final goal for 2030.  In otherwords, total metric tons of CO2 emission will be calculated for the 2030 versus individual plant average emission rates.

What are some the pro’s and con’s of rate-based versus mass-based?  EPA believes mass-based will be slightly cheaper to comply with and will allow for emission trading.  Whereas, rate-based allow overall emissions to increase with economic growth (i.e. all power plants must average a certain carbon intensity).

State Complaince Plans

State can elect from a variety of strategies to meet these goals.  Examples of strategies include:

  • Develop renewable energy sources
  • Switch to natural gas from coal-fired power plants
  • Build nuclear or increase production from nuclear
  • Energy efficiency programs
  • Emission trading (i.e. cap-and-trade programs)

Important Changes from Draft to Final Rules

Emission reductions are phased in between 2022 and 2030.  This was in response to criticism by states that the original plan demanded reductions too quickly.

As discussed below, EPA dropped energy efficiency out of concern it weakened the legal authority for the plan. 

The final plan shows more favor toward renewable energy sources to the detriment of natural gas. The final rule calls for 28% (instead of 22%) of all power generate to come from renewable energy sources.

The final rules gave an extension to states to submit compliance plans, from 2016 to 2018.  Also, compliance periods were pushed out from 2020 to 2022.

Legal Basis for the Rules

Fifteen states, including Ohio, have pledged to challenge the legal authority for the Clean Power Plan in Court.  Nine other states have pledged to defend it.  

EPA asserts that it has broad authority under Section 111(d) of the Clean Air Act – New Source Performance Standards (NSPS)- to craft the rules.  At issue is the definition of the term "standard of performance" as used in Section 111.  Does that term apply to the plant itself or can EPA use it to set standards for each state in terms of emissions from its power sector?

Opponents argue the EPA authority under Section 111(d) is limited to requiring certain technologies be installed at the plant itself.  Opponents argue that fuel switching, renewables and a trading program are all well beyond its authority.  If the opponents are successful in their challenge, the fundamental building block of the Clean Power Plan will be eliminated.

The final rule removed one of the strategies proposed for meeting reduction goals- energy efficiency. Many commentators speculate that EPA removed this component from the plan because it was the least legally defensible under Section 111(d) authority.

Another challenge to EPA’s authority will be that Section 111(d) only applies to new sources.  The Clean Air Act Section 112 provides EPA the authority to regulate existing power plants.  Section 112 covers regulation of hazardous air pollutants (HAPs) from existing power plants.

EPA argues there is ambiguity between Section 111(d) and Section 112.  Therefore, where the Clean Air Act contains ambiguity, the Agency argues it entitled to deference so long as it articulates a "reasonable interpretation" of the provision.  See, Chevron USA Inc. v. Natural Resource Defense Counsel.

Chevron was the at issue in the recent MATS decision discussed in my prior post.  In that instance, the Supreme Court held that EPA went way beyond a "reasonable interpretation" of its authority.  However, in other instances, such as the Cross-State Air Pollution Rule, the Court found the EPA did articulate a "reasonable interpretation."  Therefore, it is hard to review the prior Supreme Court cases and discern definitive guidance as to whether the Court would uphold the Clean Power Plan.

The Supreme Court has shown a willingness to support EPA’s effort address climate change.  First, the Court upheld EPA determination that greenhouse gases were pollutants regulated under the Clean Air Act in Massachusetts v. EPA. Second, it upheld the major components of EPA initial greenhouse gas regulations in its Tailoring Rule- UARG v. EPA.  While the Court upheld major components of EPA’s authority to address climate change, the Clean Power Plan is the most ambitious effort to date.

Making matters more difficult to predict how the Supreme Court may rule is the lack of case law interpreting EPA’s authority under Section 111(d).  

 On June 2, 2014, U.S. EPA released its Clean Power Plan Proposal to address carbon dioxide (CO2) emissions from existing power plants.  EPA continues to move forward with climate change initiatives as gridlock in Congress persists over the issue.  EPA’s strategy has been to target transportation and the power sector, the two largest sources of greenhouse gas emissions.

The Clean Power Plan is an interesting mix of federal regulation while attempting to provide maximum flexibility to the states to achieve emission reductions.  EPA would require a 30% reduction in CO2 emission from existing power plants from 2005 levels by 2030.  

However, rather than establishing specific emission limits for each plant, the regulation would establish "goals" for each state to achieve by 2030.  The goals were established by examining each state’s current carbon output and the potential to reduce those emissions.

Formula for Arriving at Goals

EPA has authority under Section 111(d) of the Clean Air Act (CAA) to regulate and set emission standards (42 U.S.C. Section 7411(d)).  Under Section 111(d), EPA must determine the "best system of emission reduction" (BSER) for existing sources.  EPA then must apply the system to determine the level of emission reductions required (referred to as "emission guidelines").

State’s are then tasked with developing their own plans to meet the emission guidelines.  This is where the flexibility comes in.  Rather than specifying each plant must meet a specific emission limit, EPA is allowing the state’s to choose from a variety of options on how to achieve their emission guidelines (i.e. "goals").

EPA provide four general approach to achieving the reductions and refers to those approaches as "building blocks."  These include:

  1. Reducing the carbon intensity at individual power plants through heat rate improvements;
  2. Reducing emissions from the plants that produce the most CO2 emissions by using those sources less frequently;
  3. Replacing high carbon intensity plants (i.e. coal) with low or zero-carbon generation (which means renewable sources or natural gas);
  4. Implementing demand-side energy efficiency programs that reduce the amount of generation needed in the state.

In its proposal, EPA takes the four building blocks and applies them to each individual state through a seven step process.  This formula generates a state-specific CO2 emission performance goal which is measured in average pounds of CO2 per net megawatt hour from all sources in the state.  

(To see the CO2 emission-rate goals for each state click here)

State Flexibility

After determining the amount of reductions needed in each state, EPA then defers to each state to develop its plan for achieving the emission reduction goals.  States can use any component of EPA’s four building blocks or even develop an entirely different methodology for achieving its state goal.

States are also given the option to utilizing either a rate-based or mass-based emission reduction goal.  Under a rate-based approach, emission reductions are determined by comparing the rate of CO2 emission per unit of electricity output (expressed in emissions per megawatt hour).  To establish a rate-based emission limit in the power sector, EPA has traditionally looked at the difference between coal-fired units and natural gas units.  

Under a mass-based approach, the emission reduction is based upon a quantity of reduction from an established baseline.  For example, 30% reduction of the state’s total power plant C02 emissions from 2005 baseline.

States have argued that rate-based method forces states to shut down coal plants and switch to natural gas.  A mass-based approach provides states more flexibility to choose from a menu of options to achieve reductions.  (See, Kentucky’s Comment Letter to EPA on Greenhouse Gas Reduction Policy)

After Congress failed to pass national cap-and-trade legislation in President Obama’s first term, the option is back on the table. State’s can develop an in-state only program or join with other states, such as has already been done by the Western States and Eastern States (RGGI).  Cap-and-trade, while criticized, has proven to be the most cost effective means of achieving emission reductions. 

State’s even have flexibility when it comes to compliance deadlines.  While initially states will be required by 2016 to create a plan that will include some emission reductions, states can qualify for extensions of 1 or 2 years.  

No matter when plans are submitted, states will have to achieve interim goals for reductions between 2020-2029, then meet the state final goal no later than 2030.  By providing for this flexibility, the states can choose when to accelerate their emission reductions.  

In commenting on the flexibility provided states under the rule, the New York Times reported:

“I’ve never seen anything like this, where states get this much flexibility. It’s astounding,” said Dallas Burtraw, an expert on electricity markets with Resources for the Future, a Washington research group. “The E.P.A. is signaling maximal deference to the states.”

Criticism of the Proposal

Too Strong

 Those criticizing the proposal, concentrated on the costs of achieving the proposed reductions.  Business groups, utilities and Midwest states were harshly critical of the proposal.  Opposition is probably best summed up by Indiana Governor Pence who was quoted in the New York Times as stating:

“These proposed regulations will be devastating for Hoosier workers and families,” Mr. Pence said. “They will cost us in higher electricity rates, in lost jobs, and in lost business growth due to a lack of affordable, reliable electricity. Indiana will oppose these regulations using every means available.”

Too Weak

EPA had been criticized for utilizing 2005 as a baseline.  As noted in Bloomberg, half of the emission reductions required have already been met without even a single new regulation being adopted. 

Criticism also is directed at the overall emission reductions required under the proposal.  Some think the cost of compliance has dropped dramatically in recent years.  As noted Harvard Business Review– the cost of renewable have come way down; states have already implemented regional cap-and-trade programs; and natural gas has displaced coal as the fuel of choice.

Comment Period

EPA will accept comments for 120 days after the proposed rule is published in the Federal Register.  Due to the sweeping nature of the proposal,  EPA will, no doubt, be inundated with comments.  

[Photo courtesy www.TheEnvironmentalBlog.org]

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.

 

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.. 
 

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. 

 

As Congress failed to pass climate change legislation, U.S. EPA will begin regulating greenhouse gases (GHGs) using its existing authority under the Clean Air Act.  Beginning 2011, major sources of GHGs will be required to analyze methods for reducing emissions when seeking federal permits for expansion or construction of new sources. 

When is a federal review of GHGs triggered?

Under the Tailoring Rule, U.S. EPA established thresholds for triggering federal permit review of GHGs from new and modified sources.  Initially, only the largest sources will be covered.  The newly released guidance document contains these useful tables:

  

 

 

 

 

 

 

 

       

 

 

 

 

 

 

 

 

 

If you trigger a review of GHGs under the federal air permit program (PSD permit), then the permitting agency must determine what the Best Available Control Technology (BACT) is to reduce emission of GHGs for that source. 

Complex Case-By-Case Process Will Prove Very Difficult

Selecting BACT is no easy process. BACT reviews can become the black box of permitting.  It includes a highly complex review of all existing technologies to reduce emissions and their potential application to the source.  A business may propose what they think BACT should be, however, they have no assurance the permitting agency will concur with their choice. 

US EPA’s PSD GHG guidance states all available emission reduction options for GHGs should be reviewed.  Once the options are identified, they should be evaluated based upon the following elements:

  • technical feasibility;
  • cost and other economic considerations;
  • environmental and energy considerations.  

The permitting agency performing the review should narrow the options and select the most appropriate technology or combination of technologies from the list.  This case-by-case determination provides no certainty to industry.  This is especially true for the first permits that will trigger the review. 

No Benchmarks for First Permits

With other pollutants (SO2, NOx, CO, etc.) that have long been subject to BACT review, U.S. EPA has assembled a database of permitting actions that identify technology as well as emission limits.  This database is referred to at the BACT/RACT/LAER Clearinghouse.  U.S. EPA directs permit reviewers to consult the Clearinghouse as a first step. 

With GHGs, the Clearinghouse will provide little assistance.  There will simply be no other permits issued for similar sources that will allow permit reviewers to compare determinations.  With no benchmarks, permit reviewers will be guessing at BACT. 

U.S. EPA has released white papers on available and emerging technologies for specific industry sectors.  However, these are simply laundry lists of technologies.  Until the Clearinghouse is populated, permit reviewers will have no ability to benchmark their determinations. 

 

Greenhouse Gas Regulation Commences January 2, 2011 without Legislation

On May 13, 2010, EPA finalized its regulatory approach for control greenhouse gases (GHGs) from large stationary sources.  As discussed in prior posts, the statutory thresholds for triggering EPA’s New Source Review program (NSR) are 100/250 tons per year of a regulated Clean Air Act pollutant. 

As its name implies, EPA’s NSR program requires emission reductions from new or modified sources that emit pollutants above the 100/250 TPY threshold in the Clean Air Act.  This trigger level works reasonably well for typical Clean Air Act pollutants, but not for CO2 which is emitted in much larger quantities.  If the 100/250 threshold were applied for GHGs, EPA indicates thousands of sources would be required to obtain federal air permits under NSR. 

To prevent what EPA calls would be an "absurd" result if the statutory thresholds were applied, EPA is proposing to phase the thresholds in over time.  EPA claims they have the authority to temporarily raise the statutory thresholds based on seldom used legal doctrines known as the "absurd results" doctrine and "administrative necessity."  Whether EPA truly has that authority remains to be seen.

However, the so called "Tailoring Rule" finalized on May 13th is the mechanism that raises the statutory thresholds thereby bringing in only the largest sources of GHGs.  Here is how EPA is phasing in NSR requirements for sources of GHGs:

Phase 1:  January 2, 2011 to June 30, 2011

New Sources (Construction Permits)-  Only sources that trigger NSR due to their non-GHG emissions would be required to address GHG emissions in their permits if GHG emissions exceed 75,000 tons per year.  If GHG’s exceed that threshold they must meet the Best Available Control Technology (BACT) standard to minimize GHG emissions.

Existing Sources-Must incorporate GHG related requirements into their operating permits (Title V).  Right now those requirements are limited to the GHG reporting rules previously established by EPA (40 CFR Part 98- reporting rule fact sheet)

Phase 2:  July 1, 2011 to June 30, 2013

New Sources (Construction Permits)-  Expands beyond just those sources trigger NSR for other pollutants and with 75,000 tons per year of GHG emission.  Any source that emits 100,000 tons per year of GHGs would trigger NSR permitting, even if they don’t require an NSR permit due to other pollutant emissions. 

Existing Sources-  Any modification to a source that would increase GHG emission by more than 75,000 tons per year triggers NSR.  Also, existing sources with emission of 100,000 tons per year, even they have not modified their facility in any way, will be required to obtain an operating permit (Title V) based solely on their GHG emissions.  (EPA estimates the universe of source covered is about 550- mostly landfills and industrial manufacturers.)

Phase 3  Second Rulemaking by July 1, 2012

EPA has stated it will complete a second phase of rulemaking by July 1, 2012 that will further reduce the trigger thresholds below those established in Phase 2.  EPA states it will evaluate a possible threshold of 50,000 tons per year.   Smaller sources would not be covered until April 30, 2016.

Continual Duty to Reduce the Thresholds

Legally, EPA is under a duty to reduce the trigger thresholds as soon as practicable to be in line with the statutory triggers of 100/250 tons per year.  The key question is- How long will the courts allow them to delay implementing what is expressly stated in the Clean Air Act?

(Photo: everystockphoto- cjohnson7