Tag: Greenhouse gas

What Does Regulation of Greenhouse Gas Emissions as Described by EPA in the “Tailoring Rule” have to do with the Clean Air Act?

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UARG v. EPA: Tailoring Rule Litigation

On June 23, 2014 Justice Scalia delivered the opinion of the U.S. Supreme Court on the question of whether EPA motor vehicle greenhouse gas regulations necessarily automatically triggers permitting requirements under the CAA for stationary sources that emit greenhouse gases. The statements in the opinion concerning EPA’s assertions of power are quite provoking. If read carefully, this opinion launches a warning to EPA about its future regulatory actions relative to greenhouse gases. The text of the opinion can be found here. The following quotes are offered as examples of that warning.

“EPA’s interpretation is also unreasonable because it would bring about an enormous and transformative expansion in EPA’s regulatory authority without clear congressional authorization. When an agency claims to discover in a long-extant statute an unheralded power to regulate “a significant portion of the American economy,” Brown & Williamson, 529 U.S. at 159, we typically greet its announcement with a measure of skepticism. We expect Congress to speak clearly if it wishes to assign to an agency decisions of vast “economic and political significance.” Id., at 160; See Also MCI Telecommunications Corp. v. American Telephone & Telegraph Co., 512 U.S. 218, 231 (1994); Industrial Union Dept., APL-CIO v. American Petroleum Institute, 448 U.S. 607, 645-646 (1980) (plurality opinion). Slip op at 19.

“. . . in EPA’s assertion of that authority, we confront a singular situation: an agency laying claim to extravagant statutory power over the national economy while at the same time strenuously asserting that the authority claimed would render the statute “unrecognizable to the Congress that designed” it. “ Slip op at 20.

“We are not willing to stand on the dock and wave goodbye as EPA embarks on this multiyear voyage of discovery. We reaffirm the core administrative-law principle that an agency may not rewrite clear statutory terms to suit its own sense of how the statute should operate.” Slip op at 23.

In a step wise fashion the opinion presents and answers the following:

1.  The question before the Court was “. . .whether it was permissible for EPA to determine that it motor-vehicle greenhouse-gas regulations automatically triggered permitting requirements under the Act for stationary sources that emit greenhouse gases.” Slip op at 2.

First we decide whether EPA permissibly interpreted the statute to provide that a source may be required to obtain a PSD or Title V permit on the sole basis of its potential greenhouse-gas emissions. Slip op at 10.

“It is plain as day that the Act does not envision an elaborate, burdensome permitting process for major emitters of steam, oxygen, or other harmless airborne substances. It takes some cheek for EPA to insist that it cannot possibly give “air pollutant” a reasonable, context-appropriate meaning in the PSD and Title V context when it has been doing precisely that for decades.” Slip op at 12.

“Massachusetts does not strip EPA of authority to exclude greenhouse gases from the class of regulable air pollutants under other parts of the Act where their inclusion would be inconsistent with the statutory scheme.” Slip op at 14.

“In sum, there is no insuperable textual barrier to EPA’s interpreting “any air pollutant” in the permitting triggers of PSD and Title V to encompass only pollutants emitted in quantities that enable them to be sensibly regulated at the statutory thresholds, and to exclude those atypical pollutants that, like greenhouse gases, are emitted in such vast quantities that their inclusion would radically transform those programs and render them unworkable as written.” Slip op at 16.

2.  . . . we next consider the Agency’s alternative position that its interpretation was justified as an exercise of its “discretion” to adopt “a reasonable construction of the statute.” Tailoring Rule 31517. We conclude that EPA’s interpretation is not permissible.” Slip op at 16.

“EPA itself has repeatedly acknowledged that applying the PSD and Title V permitting requirements to greenhouse gases would be inconsistent with – in fact, would overthrow – the Act’s structure and design.” Slip op at 17.

“A brief review of the relevant statutory provisions leaves no doubt that the PSD program and Title V are designed to apply to, and cannot rationally be extended beyond, a relative handful of large sources capable of shouldering heavy substantive and procedural burdens.” Slip op at 18.

3.  “We now consider whether EPA reasonably interpreted the Act to require those sources to comply with “best available control technology” emission standards for greenhouse gases.” Slip op at 25.

“EPA argues that carbon capture is reasonably comparable to more traditional, end-of-stack BACT technologies, . . . and petitioners do not dispute that.” Slip op at 26. “. . . it has long been held that BACT cannot be used to order a fundamental redesign of the facility.” “. . . EPA has long interpreted BACT as required only for pollutants that the source itself emits; accordingly, EPA acknowledges that BACT may not be used to require “reductions in a facility’s demand for energy from the electric grid.” Slip op at 27.

“The question before us is whether EPA’s decision to require BACT for greenhouse gases emitted by sources otherwise subject to PSD review is, as a general matter, a permissible interpretation of the statute under Chevron. We conclude that it is.” Slip op at 27.

“We acknowledge the potential for greenhouse-gas BACT to lead to an unreasonable and unanticipated degree of regulation, and our decision should not be taken as an endorsement of all aspects of EPA’s current approach, nor as free rein for any future regulatory application of BACT in this distinct context. Our narrow holding is that nothing in the statute categorically prohibits EPA from interpreting the BACT provision to apply to greenhouse gases emitted by “anyway” sources.” Slip op at 28.

Opinion of Breyer, with whom Ginsburg, Sotomayor and Kagan join, concurring in part and dissenting in part. Rather than exempting certain air pollutants like greenhouse gas emissions from the statute, it makes more sense to read into the statute an exemption for certain sources that were never intended to be subject to PSD.

Opinion of Alito, with whom Thomas joins, comments that Massachusetts v. EPA was wrongly decided at the time, and these cases further expose the flaw with that decision.

 

The Supreme Court’s Greenhouse Gas Permitting Decision – What Does It Mean?

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The U.S. Supreme Court today partly upheld and partly rejected the U.S. Environmental Protection Agency’s federal Clean Air Act permitting regulations governing greenhouse gas (GHG) emissions from stationary sources.  The decision is mostly a victory for EPA, and its narrow scope means that it will almost certainly not disrupt, let alone invalidate, EPA’s ongoing Section 111(d) rulemaking to set GHG emission limits for existing power plants.  At the same time, the decision does not necessarily mean that EPA’s 111(d) proposal is free from legal challenge.  That is because the decision does not address 111(d).

Today’s decision concerns the Clean Air Act’s two stationary source permitting programs – the prevention of significant deterioration (PSD) program and the Title V program.  In 2010, EPA announced that it was including GHG emissions within the scope of both programs.  Various states and industry groups challenged that announcement, and today, the Supreme Court partly agreed and partly disagreed with the challengers.

First, five justices (Scalia, Roberts, Kennedy, Alito and Thomas) held that a source’s GHG emissions, standing alone, cannot trigger the obligation to undergo PSD and Title V permitting.  That part of the decision is a loss for EPA.  But the second part of the decision is a victory for the agency.  Seven justices (Scalia, Roberts, Kennedy, Ginsburg, Beyer, Sotomayor and Kagan) held that EPA canrequire sources that are subject to PSD “anyway,” because they emit other types of pollutants in significantly large quantities, to control their GHG emissions.  In sum, GHG emissions cannot trigger the obligation to undergo PSD permitting, but EPA can use the PSD permitting process to impose source-specific GHG emission limits on facilities that trigger the process for other reasons.

The decision does not address EPA’s authority to impose substantive limits on GHG emissions using other statutory provisions such as Clean Air Act Section 111(d).

Article By:

Jacob Hollinger
Of:
McDermott Will & Emery

Curbing Greenhouse Gas (GHG) Emissions – Good for the Environment, Bad for Investors?

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On June 2, 2014, EPA issued a proposed rule to control greenhouse gas emissions (GHGs) from the electric power generation sector of the United States. EPA’s goal is to obtain a reduction of GHG emissions in 2030 from this sector of 30% from the baseline year 2005. The 2005 baseline allows EPA to take credit for GHG emission reductions that have occurred since that time without any regulatory obligation. The proposal establishes GHG emission targets for each State (expect the District of Columbia and Vermont who do not have goals under the rule). Interim emission targets must be obtained in the 2020-2029 timeframe with final targets obtained by 2030.

The proposal does not suggest any particular emission limit on particular plants, but imposes the obligation on the States to derive a plan to achieve the reductions. The only penalty for noncompliance in the proposal is that EPA would impose an EPA-developed plan within the State if it fails to submit an approvable plan. While EPA has not dictated any particular approach a State may employ, the proposal favors a cap and trade or carbon tax system as the primary manner to obtain GHG emissions reductions.

So here are the two burning questions from the perspective of investors. First, will this rule actually survive in anywhere near this form?  Second, when will affected power projects need to start ramping up investment in order to comply with the rule, i.e., when should investors start to worry about financial capacity?

In terms of a “review for reality,” many industry experts suggest that it is nearly impossible to obtain the proposed 6% efficiency improvement at existing coal-fired power plants without major capital improvements, which could require complex Clean Air Act permitting under other provisions of the law. Other goals can only be achieved through substantial purchases of carbon credits (i.e., offsets) or the implementation of technologies that haven’t yet been proven to be commercially viable. (You’ve likely heard the aspirations to develop carbon capture and sequestration.) EPA also assumes that natural gas-fired power plants will be running at 70% capacity year-round, which may be difficult to achieve in practice. Finally, EPA assumes that energy efficiency improvements at the consumer level will be obtained at a rate of 1.5% every year until 2030 – an ambitious goal.

In terms of a “review for timing,” this is only the beginning of a very long process. After the usual rounds of public comment, EPA has targeted issuance of the final rule by June 1, 2015. Then the lawsuits will start. Then a new President with his/her own views will take office. Plus, even under the EPA’s own best case scenario, the proposed rule allows states until June 2016 to submit plans, with the potential for extension to June 2017. Once a state submits a plan, EPA must approve or disapprove it through notice and comment rulemaking. The proposal allows for EPA to complete the review of the plans within 12 months of the state plan submittal. If a state doesn’t submit a plan or EPA disapproves the plan, EPA must make a plan for the state. State plans must begin to meet an interim goal in 2020 and must achieve their final goal by 2030. Plus, State plans and EPA approval/disapproval present a separate source of litigation and associated delay.

So no need for panic dumping of carbon-intensive investments just yet, but keeping an eye on the process would be wise, including consideration of whether, if your industry investments are large enough, you should participate in, or form/join a group to participate in, the comment-making phase plus working with members of Congress. The earlier the involvement, the greater the opportunity to help shape the results.

Article By:

Jeffrey R. Holmstead
Richard Alonso
Jason B. Hutt
Evan D. Flaschen
Of:
Bracewell & Giuliani LLP

USEPA Proposes to Retain Current GHG Thresholds in Step 3 of the Tailoring Rule

Recently an article by Energy and Public Utilities Group of Schiff Hardin LLP regarding the USEPA’s GHG Thresholds appeared in The National Law Review:

As the D.C. Court of Appeals heard an unprecedented two days of oral argument on challenges to USEPA’s suite of greenhouse gas (“GHG”) regulations, USEPA issued an advance copy of yet another GHG regulation-the third step of its GHG permit Tailoring Rule (“Proposed Step 3 Rule”). Advance copy of Docket No. EPA-HQ-OAR-2009-0517 available at www.epa.gov/nsr/ghgdocs/TRStep3_Proposal_FRN.pdf. Proposed Step 3 retains the current GHG permitting thresholds for the Prevention of Significant Deterioration (“PSD”) and Title V Operating Permit Programs under the Clean Air Act (“CAA”). The proposal is consistent with USEPA’s phased-in approach to tailor the requirements of the CAA to apply to only the largest emitters. In so doing, USEPA recognizes that state agencies are not ready to handle a bigger permitting program.

In 2010, USEPA committed to complete action on a Step 3 rulemaking by July 1, 2012, and to make Step 3 effective on July 1, 2013. Steps 1 and 2 of the Tailoring Rule were promulgated in May 2010, applying only to the largest sources of GHG emissions. In that rule, USEPA stated that it would take comment and consider whether to include smaller sources or lower the trigger for applicability in Step 3. In the Proposed Step 3 Rule, USEPA determined that “the permitting authorities are not significantly better positioned now” to process more GHG permits than they were in May 2010, so USEPA proposes to retain the current applicability thresholds promulgated under Steps 1 and 2.

The thresholds for determining GHG PSD applicability are as follows:

  • Step One:
    • Starting January 2, 2011, GHGs must be addressed in Title V permits for all sources that are otherwise subject to Title V permitting requirements based on their emissions of non-GHG pollutants.
    • In addition, PSD requirements apply to GHGs for projects that increase net GHG emissions by at least 75,000 tons per year (“tpy”) carbon dioxide equivalent (“CO2e”), but only for projects that are “major modifications” as a result of an increase in emissions of a regulated, non-GHG pollutant.
  • Step Two:
    • Starting July 1, 2011, some stationary sources that would not otherwise require Title V or PSD permits require such permits solely as a result of emitting GHGs.
    • Stationary sources that emit or have the potential to emit at least 100,000 tpy CO2e (and 100 tpy GHGs on a mass basis) are subject to Title V permitting requirements.
    • Stationary sources that emit or have the potential to emit at least 100,000 tpy CO2e (and 100 or 250 tpy GHGs on a mass basis, depending on the source) constitute “major stationary sources” under the PSD regulations. New stationary sources over the 100,000 tpy CO2e threshold are subject to PSD requirements for their GHG emissions. In addition, projects that increase net GHG emissions by at least 75,000 tpy CO2e are “major modifications” (assuming other elements are met and no exclusions apply), whether or not those projects would constitute “major modifications” based on an increase of any other pollutant.

USEPA also proposed two changes to streamline the permitting program under Step 3.

The first is to extend the use of the plantwide applicability limit (“PAL”) to GHG permitting. The source would apply for a PAL that would apply to the entire source rather than specific emissions points. This alteration would allow facilities to alter emissions units without triggering new permitting requirements, provided that emissions levels do not exceed the PAL. The added flexibility allows companies to respond to changing market conditions while streamlining permitting.

The second change would create the regulatory authority for USEPA to issue synthetic minor permits for GHGs where the agency is the PSD permitting authority. Under this approach, a GHG source could agree to an enforceable GHG emissions limit set below a level that would trigger PSD permitting requirements. Such a limit might be an hourly or daily fuel consumption limit, for example. USEPA proposes to give itself and its designated agents the ability to issue synthetic minor permits for GHG and potential GHG emitters. USEPA stated that many state and local permitting authorities already have the ability to issue such synthetic minor permits.

The proposal solicits comments on whether streamlined approaches could be appropriate for some source categories and requests that commenters provide detailed proposals for those source categories. For example, general permits could be considered for some. USEPA solicits comments on which source categories would be candidates for the creation for a Potential to Emit (“PTE”) specific rule or guidance; input on whether such a rule should target specific source categories or be made broadly available; and comments on the appropriate structure and requirements for such a rule.

The proposal requests comment on a number of other PSD program concepts, including permitting burden on state agencies, presumptive BACT and “empty” Title V permits. The proposal has not yet been published in the Federal Register but USEPA states that the comment period for the Proposed Step 3 Rule will end on April 20, 2012. A public hearing will be held on March 20, 2012 in Arlington, Virginia.

This brief summary does not address the many permitting decision nuances and requested comments reflected in the agency action, so careful reading of the proposed rule is suggested. For more information about the Tailoring Rule, please see our prior updates: “USEPA Issues Final Tailoring Rule” and“Greenhouse Gas Reporting and Permitting Deadlines in 2011”.

© 2012 Schiff Hardin LLP