Law and the Environment : Environmental Lawyer & Attorney : Foley Hoag Law Firm : Boston, Washington D.C.

The decision yesterday in United States v. Minnkota Power Cooperative serves as a useful reminder regarding how important the burden of proof is in review of agency decisions. The case started in 2006, as part of DOJ’s NSR enforcement initiative, when the United States and North Dakota brought suit against Minnkota’s Milton R. Young Station. The parties settled and a consent decree was entered. Apparently, the parties knew at the time of the settlement that there would be a dispute regarding what would constitute BACT for NO_x control and they thus agreed to defer the issue; the consent decree simply provided that the North Dakota Department of Health would determine BACT.

It took the DOH four years to do so, but, in November 2010, the DOH concluded that selective non-catalytic reduction, or SNCR, constitutes BACT for the MRY facility, which has unusual technology involving cyclone-fired boilers combusting North Dakota lignite, rather than bituminous or sub-bituminous coal. EPA wanted SCR identified as BACT and pursued dispute resolution under the consent decree to get it. 

Unfortunately for EPA, the decree provided that the determination by North Dakota would be binding unless EPA “demonstrates that it is not supported by the state administrative record and not reasonable in light of applicable statutory and regulatory provisions.” As the court noted, the consent decree language was not unique; it “mirrors the standard of review” for challenges to state BACT determinations even outside the consent decree context.

The crux of the case was whether cyclone fired boilers combusting North Dakota lignite were sufficiently like other coal-fired boilers that determinations for such boilers that SCRs constitute BACT should essentially be binding here. The North Dakota DOH compiled an extensive record demonstrating that such other coal-fired facilities are not sufficiently like the MRY facility, and the court deferred to DOH’s judgment, based on the record.

Perhaps the most telling evidence was that DOJ engaged an expert consultant, which issued an request for proposals to install SCR at the MRY facility. DOJ in fact obtained two proposals with performance guarantees. The availability of such guarantees is extremely probative of whether a technology constitutes BACT. However, DOJ’s consultant failed to provide in its RFP sufficient detail regarding the specific characteristics of the MRY facility – and when the companies responding to the RFP learned the details, they withdrew the guarantees, almost certainly leaving EPA and DOJ in a worse position than if they had never gone through the RFP process. One might also infer that the court thought that DOJ was trying to pull a fast one, which certainly did not help.

Yesterday’s Cape Wind decision, together with this case, even though involving totally different statutory and regulatory regimes, provide a useful joint reminder of the importance of building the record in administrative cases.

As to this case, would the outcome have been different if EPA had made the BACT decision? Would a decision to impose SCR as BACT have been upheld if the burden were on the person challenging that decision? We’ll never know, but I could see it happening. Burdens do matter.

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EPA may have had problems in court in recent years defending its regulations, but it has generally fared much better in its enforcement cases. Earlier this week, however, EPA suffered what will be, if it is affirmed, a devastating defeat in its PSD/NSR enforcement initiative. In United States v. EME Homer City Generation, Judge Terrence McVerry concluded that the government could get no relief against either the former owners of the facility or the current owners or operator. No penalties. No injunctive relief. No relief under state law. Nothing. Nada.

The facts here were typical of NSR enforcement cases. The facility, in Homer City, Pennsylvania, had implemented a number of projects from 1991 through 1996 which, EPA alleged, required PSD permits. No permits were sought. The owners at the time of the changes sold the plant in 1999. It was sold again in 2001 and is currently operated by one entity and owned by a group of LLCs. 

The court’s analysis was thorough, yet straightforward. According to the court, PSD requirements are one-time, pre-construction requirements. With respect to civil penalties, the United States acknowledged that the five-year statute of limitations precluded claims against the former owners. The court gave the claim against the current owners and operator short shrift. The court concluded that

The alleged PSD violations constitute singular, separate failures by the Former Owners to obtain pre-construction permits, rather than ongoing failures to comply with whatever hyupothetical conditions might have been imposed during the PSD permittingprocess. Thus, the United States was required to file suit to recover civil penalties for an alleged PSD program violation within five years of the construction project.

The big news from the decision is the court’s refusal to grant injunctive relief. While Judge McVerry described the statute as complex and ambiguous, he did not find the decision before him difficult. With respect to the current owners/operator, injunctive relief could not be imposed on them, because no remedy can be imposed without a liability finding. Because the failure to obtain PSD permits was solely attributable to the former owners, the current owners/operator are not liable for the violation. No liability; no injunction. 

The court found the question somewhat more difficult with respect to former owners. They would be liable for the original violation, if proved, and the five-year statute of limitations does not apply to injunctive relief. The court punted on whether it had authority to issue an injunction against former owners, resting its decision instead on the court’s broad discretion to grant or deny equitable relief. Describing injunctive relief as “a rare and extraordinary remedy,” the court concluded that it would be inappropriate to grant relief against former owners where, since they no longer own the facility, injunctive relief against the former owners is not necessary to prevent future violations by the former owners. 

Finally, the court concluded that the current owners/operator did not violate their Title V permit, because the permit does not include any requirement to meet BACT. The court flat-out rejected the idea that the Title V permit could somehow be found to “incorporate” BACT requirements that should have been included in the Title V permit because they should have been included in PSD permits, because the former owners should have applied for them. 

In short, the government was too late to bring claims against the former owners, and could not establish liability against the current owners. Thus, it could get no relief against anyone.

It is difficult to square this opinion with the general rule interpreting police power statutes broadly to effectuate their purposes, because this decision means that there will be some circumstances in which there is a violation with no remedy, even where the impacts of that violation are still being felt, or seen, or inhaled, today. However, the decision is careful and thoughtful and I wouldn’t automatically assume that it will be reversed on appeal. Not a good day for EPA.

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Thursday afternoon, EPA and the Tennessee Valley Authority announced one of the largest pollution reduction consent decrees in US history – resulting in between $3 to $5 billion of investment in air pollution controls, and retirement of almost one-third of TVA’s coal-fired generating units within the next few years.  Over the next decade, it will reduce TVA's total emissions of nitrogen oxides by 69% and sulfur dioxide by 67%.  Although the agreement provides a timely victory for EPA amid the current backlash against it in Congress, the settlement actually relates to a New Source Review (NSR) suit commenced by EPA during the Clinton Administration in 1999.  The consent decree resolves all alleged past preconstruction violations, as well as alleged violations of the New Source Performance Standards and Title V regulations.

The TVA operates 59 coal-fired boilers at 11 plants in Alabama, Kentucky and Tennessee, and supplies power to around 9 million people in its service area that spans most of the southeastern US. The settlement involves all 11 plants, and includes an obligation to address 92% of TVA’s coal-fired system between 2011 and 2018 by either installing state of the art pollution controls like SCRs and FGD or repowering with renewable biomass. Another 18 coal-fired units, about 16% of TVA’s coal-fired generating system, totaling 2,700 MW of capacity, will be permanently retired – the largest retirement commitment seen under EPA’s Coal-Fired Power Plan initiative, which has settled 22 such NSR cases so far.  However, Greenwire reports that, even before today's announcement, TVA was already planning to retire about 1,000 MW of coal-fired capacity.

I found the option to repower the units with renewable biomass to be particularly interesting, especially given EPA’s current proposal to continue studying biomass emissions for three years before requiring Clean Air Act permits for greenhouse gas emissions from biomass sources.  In the agreement, “Renewable Biomass” is defined very broadly, with no time-frames or extensive restrictions. Instead, it includes, in part, organic matter that comes from forests or grasslands, as well as residues and byproducts from agriculture, forestry and paper industry. Under the agreement, the repowered units would be deemed “new” emission units, themselves subject to New Source Review and other permitting requirements.

The settlement also includes $10 million in penalties -- $8 million paid to EPA, $1 million paid to Tennessee and $500,000 each paid to Alabama and Kentucky -- as well as $350 million in environmental mitigation projects, including $240 million to be spent on TVA-run energy efficiency projects and $60 million to be divided among Alabama, Kentucky, North Carolina and Tennessee for the states to implement projects of their choosing, so long as they're within the categories specified in the consent decree.

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Back in my public policy days, there was much discussion of “muddling through.” When I look at recent developments on the climate and air regulation front, I just see a muddle. First, we have Gina McCarthy, saying that EPA wants to walk before it runs, and assuring utility executives that New Source Performance Standards for GHG emissions will not have a “dramatic effect.” McCarthy further said that EPA will take a “common sense approach,” comparing it to EPA’s approach to the GHG BACT guidance, which she described as “not overly ambitious.”

At the same time, the first PSD permit for GHG has been issued, to Nucor Corporation's direct reduced iron manufacturing facility in Louisiana. While praising Nucor for utilizing DRI technology, which apparently generates lower GHG emissions than plants utilizing coke, and while acknowledging that this was one of the first GHG PSD applications, EPA raised two concerns that may be troubling to permittees. First, the permit would require a package of good combustion practices, but did not include a numerical limit for GHG emissions. EPA commented that the permit had not justified why a numerical limit would not be feasible. 

Second, EPA noted that the permit did not provide a basis for the conclusion that carbon capture and sequestration, or CCS, would not be feasible for this project. EPA’s comments referred to EPA’s December 2010 GHG BACT guidance as noting that CCS is generally available for iron and steel manufacturing facilities.

To EPA, the BACT guidance may be common sense. However, to the regulated community, it creates uncertainty. Uncertainty means risk. Risk means costs. Will EPA insist on numerical standards? What are those standards going to be? Based on the EPA's comments regarding CCS, it appears that EPA may be intending to treat the GHG BACT guidance as having the force of regulation. If so, we are stuck with the worst of both worlds – the absence of the protection provided by notice and comment rulemaking and the absence of the flexibility in utilizing guidance, rather than regulation. 

Moreover, EPA does not appear to understand the scope of the uncertainty created by such actions. EPA may allow the Nucor facility to proceed without CCS, once the permit application is amended to include an explanation of the infeasibility of CCS. However, there is no point in requiring such an analysis unless there is some possibility that CCS may be required. The regulated community – and state regulators – are left wondering under what circumstances CCS would be considered feasible. The same is true with the analysis of coal and natural gas. It’s difficult to read the BACT guidance without concluding that, under some circumstances, BACT for coal might be gas. However, we don’t know yet what those circumstance would be. 

On the other side of the aisle, as it were, we have the muddle that is Congressional opposition to EPA GHG regulation. Fred Upton, Chair of the House Energy and Commerce Committee, has described the NSPS standards as a “backdoor attempt to implement their failed job-killing cap-and-trade scheme.” Sadly, I only wish it were so. He seems to think that describing NSPS standards as a “cap-and-trade” scheme is the worst kind of insult. However, he’s got it backwards. First, unlike the cap-and-trade plan, the NSPS regulations are required under the existing Clean Air Act as interpreted by the Supreme Court in Massachusetts v. EPA. Second, cap-and-trade was proposed precisely because it has been demonstrated to be an economically efficient way to attain pollution reductions. It’s really only fair to describe it as job-killing if you don’t believe in anthropogenic climate change. (I’m too tired to go there today.) If Congress doesn’t want EPA to kill jobs, then give it the tools to regulate as efficiently as possible. 

Moreover, as noted in the Daily Environment Report, while Congress is up in arms about EPA climate rules, Congress is extremely unlikely to limit EPA’s authority to issue the Clean Air Mercury Rule and Clean Air Transport Rule, both of which are going to have more significant impact on power generators and electricity prices than GHG NSPS.

Occupying the middle ground – if not the muddle ground – is Senator Rockefeller, attempting the most delicate of balancing acts. While still complaining about EPA’s veto of the mountaintop removal permit for the Spruce No. 1 mine and backing legislation which would delay EPA’s GHG rules for two years, Rockefeller criticized “EPA-bashing.” Rockefeller’s view is apparently just that coal is important, coal cannot survive serious GHG regulation without CCS, and CCS requires more time. We’ll see how his dance plays back home and with the Chamber of Commerce. I thought that we are now against backing particular technological solutions and I certainly believe that sooner or later, we're just going to have to bite the bullet and put a price on carbon.

For now, though, I guess we’re just muddling through.

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Last month, I noted that, in the absence of comprehensive climate legislation, U.S. carbon policy would be a mish-mash of several elements – including more NSR enforcement. In fact, Phillip Brooks, director of EPA’s Air Enforcement Division, had just told an ALI/ABA forum that EPA’s NSR enforcement initiative is alive and well and he predicted more closures of old coal plants as a result of EPA’s NSR enforcement. Earlier this month, proving that Brooks meant what he said, the United States sued Ameren Corporation, alleging NSR violations at Ameren’s Rush Island facility in Festus, Missouri. 

Apparently, I am not the only person who has noticed the connection between NSR enforcement and efforts to make life generally more difficult for coal plants. (Perhaps Mr. Brooks should not have been so explicit in his ALI/ABA remarks.) This week, Missouri Republican Senator Roy Blunt wrote to Lisa Jackson, criticizing the Ameren enforcement action and describing it as “another backdoor method used by the EPA to broadly penalize the use of coal in the United States.”

Blunt also criticized the “tsunami” of regulations by EPA that will increase the cost of coal-fired electricity generation. We had previously noted the Credit Suisse report which predicted the closure of more than 50 gigawatts of coal-fired capacity. Blunt referred to a study by the North Electric Reliability Corporation which made a similar prediction.

As my readers know, I dislike the NSR program and the enforcement initiative. I do think that many of these projects, often 15, 20, or 25  or more years ago, truly were thought routine, even if EPA may be able to persuade a court that they were not “Routine Maintenance” within the meaning of the regulations. The NSR program is certainly not a cost-effective way to regulate. However, NSR is part of the statute, EPA believes in it, and the case law is, from EPA’s perspective, at worst ambiguous and at best favorable. I expect that EPA would be pursuing many of these cases, even if climate change were not an issue and CO₂ not considered a problem. 

Is EPA sad that its NSR enforcement has the collateral impact of making coal less economic so that small coal-fired plants retire early, thus reducing GHG emissions? I doubt it. Does the climate change issue increase EPA’s enthusiasm? Perhaps so. The question is whether this added motivation is relevant. EPA’s intent may not be relevant to the courts, but it certainly looks as though it is relevant to Congress.

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Earlier this week, the United States brought another NSR/PSD enforcement action, this time concerning the Homer City Plant, in Pennsylvania. The suit itself isn’t big news, though it’s helpful to have periodical reminders that the NSR enforcement initiative remains active at EPA and DOJ; it is a significant part of the government’s arsenal against traditional pollutants.

It’s also important to remember that, in the absence of comprehensive climate legislation, the NSR enforcement initiative has become part of the government’s climate strategy. The plant spokesman stated that the plant is “positioned quite well to succeed in whatever environment we might be looking at in the future." However, Randy Francisco, Pennsylvania representative for the Sierra Club's "Beyond Coal" campaign (and doesn’t the name say it all), had a different view: 

I don't think it's worth it to put the money into it to clean it up. This is one of the dirtiest plants in the country, and it really just needs to be put to bed.

Why do I describe this as a fine mess and how did we get here? To mix my comedic metaphors, we have met the enemy and he is us. It’s a mess, because the PSD/NSR program is a clunky, awkward, and vague program and, whatever the merits of the specific legal questions in the various suits, EPA can’t really deny that its interpretation of the program has not been a model of consistency. It’s a mess because it’s difficult to achieve programmatic results through enforcement. It’s a mess because using PSD enforcement to make coal more expensive so that coal plants will shut down and stop emitting GHGs is hardly an efficient way to regulate GHGs. 

Why are we the enemy? Simple. Because the environment would be cleaner and the economy stronger with comprehensive climate legislation combined with significant changes to the NSR/PSD program and we haven’t figured out a way to get there.

The result? No one’s happy (except, perhaps, some busy environmental lawyers and some politicians who can find opportunities for grandstanding). EPA and environmentalists aren’t happy, because we don’t have comprehensive climate legislation. Large emitters aren’t happy, because they are left with the collateral damage of PSD/NSR, a program that should be allowed to die a quiet death.

For those of us who live in the trenches of these battles, at least one detail in the complaint is worth noting.  The United States brought suit, not only against the current owner and operator of the Homer City plant, but also against New York State Electric and Gas Corporation and Pennsylvania Electric Co., both of which owned the plant prior to 1998. Why the emphasis? Because it’s more than six years ago and therefore outside the statute of limitations for the government’s penalty claims. Indeed, the government seeks penalties only from the current owner/operators. Nonetheless, it seeks injunctive relief against NYSEG and PENELEC, even though they’ve had no connection to the plant in more than 12 years. The complaint states that:

They can be ordered to fund and implement contracts with third-party vendors who design, fabricate, and install the air pollution control equipment at issue. They can also take various actions to mitigate their past illegal pollution such as purchasing air pollution credits known as “allowances.”

A fine mess we’ve gotten ourselves into.

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EPA has finally released it long-awaited PSD and Title V Permitting Guidance for Greenhouse Gases, also known as the GHG BACT Guidance. E&E News quoted Gina McCarthy as saying that GHG permitting would be “business as usual” and that the transition to issuing PSD permits for GHGs would be relatively smooth. 

Not.

It’s certainly true that the GHG BACT Guidance says nothing particularly new about how permitting agencies should perform BACT reviews. Giving credit where credit is due, I’ll complement EPA for using plain English and describing the basic BACT process about as cogently and concisely as I’ve seen. The BACT Guidance also heavily emphasizes the use of energy efficiency measures in attaining BACT for GHGs, as has been expected. That should provide at least some comfort to the regulated community.

Having praised the BACT Guidance, I’ll now do my best to bury it. I just don’t think anyone can truly say that it actually provides any guidance to either state permitting agencies or the regulated community regarding what in fact will constitute BACT. In fairness to EPA, I think that’s because they don’t know, but that’s hardly a comforting thought. It’s got to be worrisome to regulated facilities that they are now subject to a requirement to demonstrate BACT for GHG when they make a major modification at their facility and they simply don’t know what it will take to comply with the GHG requirements.

Take, for example, EPA’s discussion of when an agency requirement to evaluate a particular control option might be considered to “redefine the source.” The BACT Guidance discusses this issue for six pages, but provides what seems to me to be no guidance at all. The Guidance repeats the bromide that

EPA has recognized that a Step 1 list of options need not necessarily include inherently lower polluting processes that would fundamentally redefine the nature of the source proposed by the permit applicant. BACT should generally not be applied to regulate the applicant’s purpose or objective for the proposed facility.

However, the Guidance then ominously states that permitting agencies must

take a ‘hard look’ at the applicant’s proposed design in order to discern which design elements are inherent for the applicant’s purpose and which design elements may be changed to achieve pollutant emissions reductions without disrupting the applicant’s basic business purpose.

If that doesn't send chills down the spines of engineers everywhere, I don’t know what will.  Similarly, the guidance says that "EPA continues to believe that permitting authorities can show in most cases (my emphasis) that the option of using natural gas as a primary fuel would fundamentally redefine a coal-fired electric generating unit."  Unfortunately, the guidance then notes that where a power plant already combusts another fuel, such as for start-up purposes, it would be appropriate to evaluate whether use of that fuel might be BACT.

The Guidance is too long to summarize fully in a blog post, but I do want to leave you with one image, courtesy of EPA. In discussing the requirement to identify energy efficiency options, the Guidance helpfully states that not “every conceivable improvement that could marginally improve the energy efficiency of the new facility” need be listed. In making this concession, EPA cited to Sierra Club v. EPA, which “recognized the undesirability of making the BACT analysis into a ‘Sisyphean labor where there was always one more option to consider.’”

We can only hope that EPA and state permitting agencies really take those words to heart as this process unfolds. I’m not optimistic.

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In a crisply written opinion by Judge Posner, the 7^th Circuit Court of Appeals just reversed a district court judgment against Cinergy in the NSR case involving Cinergy’s power plant in Wabash, Indiana, and directed that judgment enter for Cinergy. It is not obvious that the case will have wide applicability, but it is certainly worth noting.

The first key issue in Cinergy was whether proposed new projects would be subject to NSR review if they were expected to result in an increase in annual emissions or only if they would result in an increase in the hourly emissions rate. In an earlier ruling, the 7^th Circuit decided that annual emissions, rather than the hourly rate, was the appropriate test provided for in the statute and regulations.

However, when the case came to trial, a twist occurred. The jury only found violations with respect to four projects. All of those projects occurred between 1989 and 1992 – and during that time, Indiana’s SIP stated that the applicable test was whether a project would result in an hourly emissions rate increase. Even more complicated, EPA had approved the SIP, even though it also told Indiana that the SIP had to be changed. Indiana had apparently changed its rules prior to 1989, but failed to submit a SIP modification until 1994. The Court ruled that EPA must be held to the SIP that it approved and that was in effect at the time of the projects.

The Clean Air Act does not authorize the imposition of sanctions for conduct that complies with a State Implementation Plan that EPA has approved. The EPA approved Indiana’s plan with exceptions that did not include [the improper test.]

Calling EPA’s approval of the SIP a “blunder,” the Court said that EPA must live with it.

It’s not obvious that this decision will have much relevance outside cases in Indiana involving projects implemented during the time Indiana’s SIP contained the wrong test. However, it is a lesson that the details do matter – in particular, the details of the relevant SIP.

The second aspect of the case is also a lesson in the nitty-gritty of litigation – and may have broader applicability. With respect to NOx emissions [it is not clear why the NOx allegations were not controlled by the prior part of the decision], EPA relied on two experts to testify that the projects would result in increases in annual emissions. However, both experts relied on a formula used for baseload power plants. Unfortunately for EPA, the Wabash facility is a cycling plant, not a baseload plant. The model used by EPA's experts assumes that an increase in capacity would result in a proportionate increase in output. However, that assumption is not valid for a cycling plant. The Court thus ruled that the experts’ opinions should not have been admitted; without them, EPA had no evidence of increased emissions and judgment had to enter for Cinergy.

This aspect of the case provides a cautionary lesson for the government (though I wouldn’t start dancing in the street if I were defending one of these cases). I think that there has been a sense that, if the government wins the legal battle on the issue of annual emissions v. hourly emissions rate and wins the routine maintenance argument, then the defendants are sunk. This case is a reminder that the facts still matter and that the government has to prove its case based on evidence regarding the specific projects being challenged.

What a notion.

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Earlier this week, I posted about the dire prospects for climate change legislation following the fall elections. The alternative to legislation has always been regulation under existing Clean Air Act authority, so it’s appropriate as a follow-up to briefly examine the pressures on EPA as it moves forward with its stationary source GHG regulations. Two headlines from the trade press today brought home just what a tightrope EPA is walking.

The first headline, from the Daily Environment Report, was to the effect that a “Ban on New Source Construction [Is] Possible In States Without Greenhouse Gas Permitting.” Specifically, Raj Rao, of EPA's Office of Air Quality Planning and Standards, said states that have not taken steps to implement permitting requirements by Jan. 2 could face the construction ban.

The second headline might be described as a corollary of the first. Today’s GreenWire notes that “New rules spark bipartisan fury in midterm elections.” Well, duh. Is it any surprise that in the face of continuing unemployment near 10%, regulations that even EPA acknowledges might result in construction bans in some states would be a topic of debate in congressional elections? In fact, the GreenWire piece was not even primarily about the GHG regulations and made no mention of the potential construction ban. It was largely about other EPA rules, such as the boiler MACT rule.

I have a certain amount of sympathy for EPA on this one. As I’ve noted previously, to a certain extent, EPA is just doing its job. On GHGs, it really has no choice but to regulate. While I have doubts about the legality of the Tailoring Rule, the alternative is only more onerous. The boiler MACT rule is another matter – and is complicated enough to warrant several posts of its own. However, EPA’s options are limited given the stringent provisions Congress itself wrote – and a Republican President signed into law. On conventional pollutants, the science is driving EPA towards lower and lower NAAQS, and more stringent rules on emitters follow like night follows the day.

Just so my friends in the regulated community don’t think I’ve gone soft, I will point out that it is at the least disingenuous for Administrator Lisa Jackson to say, as she was quoted in GreenWire, that:

The Clean Air Act does not place our need to increase employment in conflict with our needs to protect public health.

Somehow, that message has never gotten to the EPA and DOJ lawyers briefing appeals of EPA regulations, where those opposing the regulations say that they are uneconomic, while EPA's invariable rejoinder is that the Clean Air Act doesn't allow for the consideration of the cost of regulations in deciding how stringently to regulate.

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EPA shows no signs of slowing down in its efforts to use the Clean Air Act’s PSD/NSR provisions as an enforcement club. The latest target in EPA’s crosshairs is the Detroit Edison Monroe Power Plant. Late last month, DOJ filed a complaint alleging violations of PSD/NSR requirements in connection with a project to replace the high temperature reheater and the economizer at Monroe Unit 2. Aside from the broad sign that EPA remains committed to these cases, the most recent action is notable for at least two reasons:

The suit names both Detroit Edison, which owns the plant, and DTE Energy, Detroit Edison’s parent. The complaint alleges that DTE Energy “employees make decisions involving construction and environmental matters at the plant” and that it “must approve major capital expenditures at” Monroe. Naming the parent is consistent with actions EPA has taken with respect to some of this firm’s clients; Parent companies would be wise to pay attention to this trend.

The project that is the subject of the complaint took place this year; we’re not talking about EPA reaching back to projects completed in the 1980s or 1990s. The complaint alleges that DTE provided one day’s notice before commencing the project. I’m not involved in the case, so I don’t know the details, but it’s hard to imagine that there isn’t some relevant background here. Either Detroit Edison and DTE, relying on some of the more favorable PSD/NSR decisions, decided just to pay their money and take their chances, or someone at EPA or the State of Michigan led the plant astray. Time will tell.

There has been no doubt for some time that EPA is going to continue to seek reductions in conventional pollutant emissions through these types of enforcement actions. This action is also a good reminder, however, of the type of action we have to look forward to, assuming that the Tailoring Rule is upheld. If there is no Congressional action, the PSD/NSR program is going to be EPA’s only leverage to get GHG reductions.

I can’t wait.

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Last week, Judge Thomas Varlan handed the power plant sector a major win in the NSR enforcement arena, ruling that economizer and superheater replacement projects in 1988 at the TVA Bull Run plant were routine maintenance not subject to NSR/PSD regulations. Judge Varlan ruled for the TVA notwithstanding that: 

The projects cost millions of dollars (but less than $10M each)

They extended the life of the plant by 20 years

The costs were identified as capital, not maintenance, expenses

The projects were more extensive than other economizer/superheater projects that had previously been implemented at the Bull Run facility

Why did the Court rule for the TVA?

Although expensive, the projects’ costs were consistent with a wide range of maintenance projects conducted at Bull Run during the time frame

These projects were routine in the industry, even if not commonly performed more than once at individual facilities

Life extension, while a result of the projects, was not their primary purpose

If this decision is upheld on appeal, it will significantly weaken EPA and citizen NSR/PSD enforcement efforts in the power plant sector – at least in the Sixth Circuit, where there are a lot of coal-fired power plants.

Whether the decision is right or wrong – and neither reversal nor affirmance by the Sixth Circuit would surprise me – I’d like to take this opportunity to get on my soapbox about the NSR program as a whole. Why are we fighting about whether projects implemented 22 years ago were routine maintenance? Wouldn’t it make more sense to rely on trading programs that are proven to work cost-effectively to reduce emissions than to try to figure out whether replacement of a superheater provides sufficient leverage to require a power plant to install a scrubber or SCR?

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Last year, EPA delayed implementation of the Bush EPA’s Aggregation Rule; at the time, I said that the rule was on life support. Earlier this week, EPA announced that it was formally proposing to revoke the aggregation rule. It looks as though the rule is now off life support and it’s time for the last rites.

The aggregation rule always seemed to me a piece of simple, common-sense regulatory reform; it was not a case of wild-eyed right wing radicals trying to gut environmental regulations. The basic issue is this. EPA wants to make certain that regulated facilities don’t avoid NSR review by carving big projects up into lots of little ones, each of which might escape review. That’s a perfectly reasonable goal, but I still don’t understand what’s wrong with having a simple test – whether the separate projects are “substantially related” – to determine whether to aggregate them. One way to put it is to ask why EPA would ever want to aggregate projects that are not “substantially related.” 

EPA has stated that the term “substantially related” is “vague.” It may not be perfect, but few things are in this world, particularly the world of NSR regulation. In any case, that very vagueness would give EPA a lot of discretion in determining whether aggregation would be required. EPA also noted that the rule fails “to consider a company’s intent.” Is it really better for EPA to be in the business of determining a company’s subjective intent than to answer the objective question of whether projects are in fact substantially related?

After criticizing the subjective element of EPA’s preferred approach, I should hesitate to speculate about EPA’s motives here, but this is what I think EPA’s proposal is about. EPA believes that the NSR program is its best tool for obtaining emissions reductions and it will craft every piece of the NSR program to provide maximum ability to coerce reductions – regardless of whether such coercion is consistent with the statutory provisions or whether the regulatory approach is cost-effective. Moreover, EPA’s position pretty much explicitly states that it does not trust business – a truer look into EPA’s views on the regulated community than any platitudes EPA may provide about wanting to work with the business community in crafting workable environmental regulations.

My depression is substantially related to the flaws in the NSR program.

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Now that health care legislation has passed, the question is whether passage of the health care bill will unleash a cascade of other legislation, including a climate change bill, or whether Congress will be so exhausted and so polarized that nothing else will happen. I lean to the former position, but only time will tell. One positive indication was Senator Graham’s statement that, notwithstanding his views on the health care bill, he will continue to work towards passage of a climate change bill. Another shout out seems in order for Senator Graham.

The second positive indicator is the chorus of concern recently voiced by environmental groups about the direction in which climate legislation seems to be heading. If the Center for Biological Diversity is expressing grave concern, I suspect that negotiations are probably about where they need to be for a bill to pass. The concern expressed most recently by environmental groups is that the Senate negotiations appear to be headed towards inclusion of language preempting both state regulation and EPA regulation under existing Clean Air Act authority – both of which seem to me to be no-brainers. 

I’m sure that the CBD truly is appalled at the idea of preemption; I hope that the more mainstream environmental groups are more practical and will simply use their opposition as a bargaining chip. While I’m not really in the prognostication business, I’d be about willing to guarantee that there won’t be a bill unless there is preemption language.

Another issue that’s jumped up on the radar screen is off-shore drilling, with a number of Senators indicating that it has to be part of a bill, while 10 Democrats have written to Senators Kerry, Graham, and Lieberman indicating that they may not be able to support a climate change bill that provided for increased off-shore drilling.

Finally, E&E Daily reported that Obama staffers, including Carol Browner, met with Senate Democrats yesterday to discuss ways to move Senate legislation in April. The report indicates that Kerry, Graham, and Lieberman hope to draft a bill in the next few weeks. I don’t think we’re going to see the Senate pass a bill any time soon, but it does look as though things are starting to move.

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Last week, Judge John Darrah handed the government a defeat in a PSD/NSR enforcement action, when he ruled that the requirement to obtain permits under the PSD program prior to making major modifications was solely a pre-construction obligation and did not constitute a continuing violation. 

United States v. Midwest Generation was one of the recent wave of government PSD/NSR actions, filed last summer. The problem with the government’s case was that Midwest Generation had purchased the six facilities at issue in the case from Commonwealth Edison in 1999 and all of the alleged changes but one were made prior to the purchase.

Although the court thoroughly reviewed the case law – and found it generally supportive of its conclusion – its major focus was on a plain reading of the statutory language (and we know how much this Supreme Court likes plain readings). The relevant statute provision provides that:

No major emitting facility … may be constructed in any area to which this part applies unless … a Permit has been issued…. 

To Judge Darrah,

the plain meaning of the statute’s introductory language … thus prohibits the construction of a “major emitting facility’ unless [the statutory requirements] are met…. On its face, nothing in § 7475 prohibits the subsequent operation of such a facility without a permit. (Emphasis in original.)

There are other counts in the government’s complaint, including claims of operating permit violations. However, the decision on the NSR/PSD claims is quite significant. The case does not simply dismiss, as some other decisions have done, penalty claims. This is not a statute of limitations decision (though the Judge did also follow most other cases in dismissing, on statute of limitations grounds, the penalty claims with respect to the one alleged modification that occurred after Midwest Generation bought the facilities). As Judge Darrah made clear, the government is not entitled to “any relief on those claims – injunctive or otherwise.” (Emphasis in original.)

Score one of generators – particularly merchant generators who bought facilities after modifications had already been made.

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Shortly before the holidays, EPA Administrator Jackson issued an Order in response to a challenge to a combined Title V / PSD permit issued by the Kentucky Division for Air Quality to an Integrated Gasification Combined Cycle, or IGCC, plant. The Order upheld the challenge, in part, on the ground that neither the permittee nor KDAQ had adequately justified why the BACT analysis for the facility did not include consideration of full-time use of natural gas notwithstanding that the plant is an IGCC facility. 

The Order may not be shocking in today’s environment – all meanings of that word intended – but the lengths to which the Order goes to avoid its own logical consequences shows just what a departure this decision is from established practice concerning BACT. BACT analyses have traditionally involved the proverbial “top-down” look at technologies that can be used to control emissions from a proposed facility. In other words, EPA takes the proposal as a given, and then asks what the best available control technology is for that facility. 

In EPA’s own words – from its New Source Review Workshop Manual (long the Bible for BACT analysis):

Historically, EPA has not considered the BACT requirement as a means to redefine the design of the source when considering available control alternatives. For example, applicants proposing to construct a coal-fired electric generator, have not been required by EPA as part of a BACT analysis to consider building a natural gas-fired electric turbine although the turbine may be inherently less polluting per unit product (in this case electricity).

Apt example, don’t you think? (In case you are wondering, EPA’s decision does not discuss or refer to this text from the NSR Manual.)

What was the basis for EPA’s decision here? Largely, it is that the IGCC facility will be designed to burn natural gas as well as syngas and the permittee specifically stated that it planned to combust natural gas during a 6-12 month startup period. On these facts, EPA concluded that the permittee and KDAQ had to do a better job explaining why full-time use of natural gas should be considered “to redefine the design of the source.”

As noted above, EPA went to great lengths to minimize the scope of the decision. It states that the Order:

should in no way be interpreted as EPA expressing a policy preference for construction of natural-gas fired facilities over IGCC facilities.

should not be interpreted to establish or imply an EPA position that PSD permitting authorities should conclude … that BACT for a proposed electricity generating unit is … natural gas.

does not conclude that it is not possible or permissible for the permit applicant … to develop a rationale which shows that firing exclusively with natural gas would “redefine the source.”

EPA does not intend to discourage applicants that propose to construct an IGCC facility from seeking to hedge the risk of investing in … IGCC technology by proposing … utilizing natural gas for some period….

Methinks EPA doth protest too much. If I may say so, this is a freakin’ IGCC facility. Isn’t it obvious that one doesn’t plan or build an IGCC facility if one plans to burn natural gas? Don’t you think that EPA could have taken administrative notice of what IGCC technology is?

All of EPA’s protestations about the Order’s limits may be designed to mollify IGCC supporters, but what does its rationale mean for all of the existing facilities – coal and oil – that are already capable of firing on natural gas? Next time they are subject to NSR/PSD review, must they evaluate the possibility of switching completely to natural gas? As I’ve said here before, yikes!

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EPA announced yesterday that it had reached a settlement with Duke Energy to address allegations of New Source Review violations at Duke’s Gallagher coal-fired generating plant in New Albany, Indiana. A jury had already found Duke liable for certain NSR violations at the plant. The settlement obviates the need for a remedy trial, which had been scheduled for early 2010.

The settlement requires Duke Energy to repower Units 1 and 3 at Gallagher with natural gas or shut them down and to install emission controls at Units 2 and 4. Duke will also pay a $1.75 million penalty and spend $6.25 million on various mitigation projects. 

The settlement is not that surprising, particularly given the prior liability findings. It nonetheless serves as a useful reminder that EPA continues to focus on coal plants and that it is going to use all the tools at its disposal to reduce coal plant emissions. Although the press release does not mention global warming, these settlements are another way for EPA to attack the climate change problem under existing authority, even in advance of rules regulating GHGs under the PSD program.

BTW, if it seems as though I am inundating you with posts today, the blog will be on vacation until January 4, so I wanted to get some last posts done. Happy holidays to all.

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As anyone not hiding under a rock has by now probably realized, EPA officially announced Monday that it has concluded that GHG from human activity threaten public health and the environment. Since the announcement was not exactly a surprise, the question remains what impact it will have.

In the short run, the timing certainly seems intended to coincide with the Copenhagen talks and help to demonstrate to other nations that the U.S. is taking concrete steps to address climate change. We’ll see shortly how successful the endangerment finding is in that respect.

Since I spend most of my time down in the trenches, I’m more concerned with the impact of the endangerment finding on the domestic front. There are really three fronts here:

Litigation – If there was any suspense regarding whether anyone would challenge the endangerment finding, such suspense was quickly relieved by an announcement from the Competitive Enterprise Institute that it would indeed sue. CEI’s press release stated that the global warming “models are about to sink under the growing weight of evidence that they are fabrications.” Uphill battle barely begins to describe the likelihood that CEI wins that case.

Prospects for Cap-and-Trade Legislation – Notwithstanding Administrator Jackson’s protestations to the contrary, it’s hard not to see the announcement as a further prod to Congress to get moving, particularly since the Administration keeps saying that it would prefer enactment of a cap-and-trade bill. Even so, however, some members of Congress indicated that the announcement would have little impact, because the endangerment finding was expected and thus adds little new.

EPA Development of Regulations – EPA is moving forward with regulatory development, though Administrator Jackson gave no time line for when stationary source regulations would be promulgated. There was an indication that EPA would issue BACT guidance in advance of issuing NSR regulations. Notwithstanding the promise of BACT guidance, it appears that states are not ready for the brave new world of using the NSR program to regulate GHGs. ClimateWire reported that Bill Becker, executive director of the National Association of Clean Air Agencies, believes that states will have hard time getting ready to process stationary source permits by March.

I actually found the biggest take-away from the announcement to be the Administrator’s statement that she wanted EPA regulations that would be complementary to new legislation. "I don't believe this is an either-or proposition," ClimateWire reported her saying. 

Uh-oh. 

I thought that the deal had always been that legislation would substitute for regulation under the existing CAA. Otherwise, what do the administration’s statements that it would prefer legislation to regulation mean?   I’m having difficulty imagining a world with both a cap-and-trade program and NSR regulation of GHGs.

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According to a report released last week by Environment America, power plants were responsible for 42% of the CO₂ emitted in the United States in 2007, substantially more than any other sector, including transportation. What’s the explanation? Largely, it’s the age of the United States power plants. The report, based on EPA data, states that 73% of power plant CO₂ emissions came from plants operating since prior to 1980.

What’s the solution to this problem, in the absence of cap-and-trade legislation enacting? EPA’s already told us, and we shouldn’t be surprised – promulgation of EPA’s “Tailoring Rule,” subjecting existing facilities emitting more than 25,000 tons per year of CO_2e to EPA’s New Source Review program.

And what’s the problem with this solution? To a significant degree, it’s that it is the NSR program that got us in this mess in the first place. As my friend Rob Stavins has noted, regulatory programs – such as NSR – that impose different requirements based on the age of a facility, known in the lingo as “vintage-differentiated regulations” or “VDR”, not surprisingly lead to the perverse result that older, more-polluting, facilities stay in service longer than if regulations were imposed in an even-handed manner on different vintages of facilities.  In other words, we have the NSR program to thank for the situation described in the Environment America report.

Can anyone doubt, therefore, that application of NSR rules to GHGs will cause those who own such facilities to try to operate them as long as possible without implementing any “modifications” that would trigger application of NSR? Moreover, can anyone doubt that application of NSR rules to new facilities would give old facilities a further cost advantage? Sure, EPA can try to tighten the NSR rules and continue to pursue NSR enforcement cases in order to discourage existing facilities from disguising “life-extension” projects as routine maintenance. However, it’s still a jury-rigged system at best. After all, the program is called New Source Review for a reason.

I’m just a poor country lawyer, but I still think that a cap-and-trade program is a better solution for all sides. Add a traditional three-pollutant piece to it, trade that for elimination of the NSR program in its entirety, and you’d really have something. 

Still dreaming, I know.

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Boston Celtics’ fans know the phrase “fiddlin’ and diddlin.” Well, the Senate continues to fiddle and diddle over climate change legislation. Those who have worked with Gina McCarthy, current EPA air chief, know that she has probably never fiddled or diddled in her life, and I certainly don’t expect her to do so with respect to GHG regulation under existing Clean Air Act authority in the absence of comprehensive legislation. As a result, it now seems likely that EPA will be issuing climate change regulations before any legislation is enacted.

What’s the basis for this conclusion? First, the Senate side:

E&E Daily reported today that Senate leaders are not planning to bring the cap-and-trade bill to the floor until after work on health care and financial regulation bills has been completed.

Senator Webb today “blasted” cap-and-trade legislation as “enormously complex.” (Even with a tailoring rule, good luck eliminating the complexity from EPA regulation under current authority)

So, things aren’t exactly cooking with gas on the legislation front. What’s up at EPA?

Last week, EPA sent the endangerment rule to OMB for final review

EPA’s stakeholder group on the tailoring rule has been hard at work at work and expects to have a preliminary report out by the end of the year. The Daily Environment Report gives a good flavor of the complexities faced by this project, but there is no question that the group and EPA are moving forward.

The bottom line is that unless a health care bill passes soon, and unless passage relieves a bottleneck in the legislative pipeline, we will all be participating in the experiment to see if EPA can make climate change regulation work under existing CAA authority. 

May you live in interesting times.

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On Thursday, EPA issued its long-awaited proposed rule describing how thresholds would be set for regulation of GHG sources under the existing Clean Air Act PSD authority. Having waded through the 416-page proposal, I’m torn between the appropriate Shakespeare quotes to describe it: “Much ado about nothing” or “Methinks thou dost protest too much.”

First, notwithstanding its length, the proposal is quite limited in scope. In essence, it has three parts:

Establishment of an applicability threshold for PSD and Title V purposes of 25,000 tons per year of CO₂e.

Establishment of a PSD significance level of from 10,000 tpy CO₂e and 25,000 CO₂e.

Development over the next five years of means to streamline GHG regulation of sources greater than the current statutory levels of 100-250 tpy.

Basically, EPA’s position is that, once it begins to regulate GHGs as a pollutant by promulgating its mobile source rule – expected next spring – stationary source regulation under the PSD and Title V programs follow automatically. Thus, the issue for EPA at this point is not whether to regulate stationary sources, but how to do so without the entire program grinding to a halt.

Here’s where the protestation comes in. Most of the proposal is devoted to explaining EPA’s reliance of the doctrines of “absurd results” and “administrative necessity” to justify exclusion of sources that would seem to be categorically included by the explicit language of the statute. Members of the regulated community will understand the irony in EPA’s extensive discussion regarding how the purpose of the PSD program is to achieve environmental protection and economic development – and that this latter purpose would be jeopardized by regulation of sources at the 100/250 tpy threshold. I don’t think we will ever again see EPA devote this many pages to a description of its concern about economic growth.

I’m not going to predict here whether EPA will win any challenge to the higher thresholds. Certainly, the absurd results doctrine argument is the stronger of the two. It is noteworthy that the four leading environmental cases EPA cites in support of its administrative necessity argument, while acknowledging the existence of the doctrine, all went against EPA.

More relevant still is the question of who would in fact challenge this regulation and what would be the result even if the challenge succeeded. Following the debacle that resulted from vacation of the CAIR rule, what is the likelihood that a successful challenge would result in vacation of the rule in its entirety? Isn’t it more likely that the rule would stay in effect as to the large sources, with the court remanding the case to EPA to promulgate rules governing smaller sources? In fact, that’s what EPA is already doing, which is probably EPA’s strongest practical argument in support of the rule.

Public comments will be due 60 days from Federal Register promulgation and there are some issues that the regulated community should consider. These include the significance threshold, and suggestions regarding how to streamline the program for smaller sources. EPA has proposed some interesting ideas, including presumptive BACT determinations and general permits. 

Bottom line? Large sources better get ready to comply. Smaller sources, take a deep breath and count your blessings – for now. 

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The silence from Congress recently concerning climate change legislation has been deafening. The continued health care debate does not bode well for early passage of the Waxman-Markey bill. Meanwhile, EPA is not sitting on its hands.

Daily Environment Report noted last week that EPA has sent to the OMB a proposal to reverse the Agency’s policy that CO₂ is not a pollutant subject to the PSD provisions of the Clean Air Act. Also last week, Greenwire reported that: “As Hill debate flounders, EPA plows ahead on emissions rules.” [And for those of you who can’t get enough of the debate between “founder” and “flounder”, take a look here.] The Greenwire story reports that EPA is moving ahead on rules governing emissions of GHGs from automobiles and large stationary sources.

The biggest debate continues to be whether EPA has legal authority to exempt small sources of CO₂ (probably those emitting less than 25,000 tons per year) from PSD rules. Certainly, the D.C. Circuit’s treatment of EPA’s CAIR rule should give everyone pause that the Court will approve rules that don’t seem to have authority in the CAA, just because everyone thinks that the rules would be good public policy. The strongest argument in support of the exemption – or at least the one mentioned most often – is simply that no one would challenge such a rule, because it would obviously be such a good idea. I’m skeptical. Major sources who want to torpedo the entire rule might easily challenge such an exemption.

I hate to sound like a broken record, but I keep coming back to a slightly different question: Who in their right mind would prefer EPA rules under current CAA authority to comprehensive legislation, however imperfect the legislation might be? Those assessing the merits of legislation can’t compare it to the status quo, because, as these recent moves by EPA demonstrate, the status quo cannot hold for long. The comparison must therefore be between the Waxman-Markey bill and the world as it will be once EPA regulates under existing authority.

It’s looking more and more likely that Congress may not have sufficient momentum to pass legislation until the reality of EPA regulation becomes manifest. I’m not looking forward to that.

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In another sign that the NSR program is alive and well under the Obama administration, the United States (together with the State of Illinois, filed suit Thursday against Midwest Generation, alleging violations of NSR requirements at six coal-fired power plants. Although the action is not too surprising, given that the Bush EPA had issued a notice of violation to Midwest Generation in 2007, it remains noteworthy. Each new prosecution serves to remind generators that failure to comply with NSR rules can lead to significant costs.

Of course, that in terrorem effect on other generators is precisely what the administration and environmental groups want. Unfortunately, for those of us who believe that the NSR program is an incredibly wasteful way to reduce air pollution, such litigation only detracts from efforts to make air pollution control regulations more cost-effective.

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Last week, Judge Larry McKinney issued an order requiring to shut down three coal-fired generating units at its Wabash Station facility by no later than September 30, 2009. The decision actually struck me as a thoughtful analysis of injunctive relief issues in a situation where a violation of NSR regulations had already been proven. Although the decision has gotten most press for the order shutting down the units, it covers a number of issues important to injunctive relief situations, and there are some nuggets which are potentially useful to generators; it is not a one-sided decision. Here are some highlights:

The shut-down order – although significant, is not as earth-shattering as it seems. Cinergy gave the judge little choice by testifying that it would not be economic to install pollution controls on the units, given their age and size. The fight was thus about when, not whether, the units would be shut down. The judge was clearly annoyed that, following the liability finding, Cinergy had seemingly taken no action to plan for a shut-down. The judge, in response to reliability concerns, did allow the units to operate through the summer of 2009.

Irreparable harm discussion – a few noteworthy aspects here

The court relied on modeling which demonstrated that Wabash emissions contributed to PM_2.5 levels downwind

The court noted that contributions of “just a few tenths of a ug“ can be significant when an area is on the border between compliance and noncompliance.

Like the court in the TVA injunctive relief case we posted about earlier this year, the court specifically noted that adverse health affects can occur at levels below the NAAQS

The court rejected the plaintiffs’ argument that acid deposition and mercury emissions from Wabash had caused irreparable harm, concluding “that Plaintiffs did not provide sufficient nexus between the relevant excess emissions and the negative … effects. 

In a win for generators, the court rejected the plaintiffs’ position that BACT for NO_x emissions in 1989 was SCR technology. This is an important issue, because EPA and the states will sometimes try to take the position that unproven technologies are nonetheless BACT. The decision squarely rejects that argument.

Surrender of SO₂ allowances. The court required Cinergy to surrender SO₂ allowances equal to the excess emissions from the May 2008 jury verdict to the time the units are shut-down. However, it is important to note that the Plaintiffs had requested that the court order Cinergy to install BACT on larger units at the Station that had not violated NSR rules. The court rejected that argument, noting that the Plaintiffs’ proposal “does not bear an equitable relationship to the degree and kind of harm it is intended to remedy …. Imposition of such a remedy is punitive in nature.”

In sum, although the decision is important, it is not surprising in context. Indeed, the finding on BACT, which was favorable to Cinergy, may have the most precedential significance.

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Earlier this week, the jury reached a verdict in the Cinergy – now Duke Energy – NSR retrial. The short version is simple:

Condensor retubine – no need to go through NSR

Pulverizor replacement – requires NSR

I don’t know all of the details of the case.  For example, I don’t know if the pulverizer capacity was expanded when they were replaced.  If any readers know the details and want to share them, I’d be grateful.

The decision does call to mind a previous post, in which I suggested that environmentalists might trade elimination of the NSR program for a requirement that all existing facilities comply with NSPS by a date certain. If instead of the current NSR program, the CAA had been amended in 1977 to give existing facilities until 2002 – 25 years – to be as clean as new facilities, there would have been howls of outrage at the time from the environmental community, but today we would be in a much better place.  Although the same howls would be heard today, shouldn’t it be possible to reach a deal, particularly given the pressure old facilities will be under as a result of a cap-and-trade program, that would eliminate NSR in return for a date certain by which existing facilities have to be clean as new?  It might be 15 years later than if the deal had been struck in 1977, but that doesn’t mean it would be a bad idea now.

BTW, for a cogent economic analysis of this issue, take a look at my friend Rob Stavins' post from a few weeks ago.  I'm tempted to say great minds thing alike, but perhaps I'll just go with a great mind thinks alike.

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We have previously posted about EPA’s efforts to roll back regulatory changes made by the Bush Administration, particularly with respect to the NSR program. There is no question that the roll-back continues. This week, EPA announced it would review three separate NSR rules promulgated by the Bush administration. These include:

The “reasonable possibility” rule, which identified when major sources must keep records even if a contemplated change is not expected to trigger NSR review

The fugitive emissions rule, which limited by source category when fugitive emissions must be taken into account in determining NSR applicability

The PM_2.5 rule, which included provisions regarding submittal of state implementation plans, or SIPs, for PM _2.5 compliance. One particular issue of concern is the provision which deferred until 2011 the date by when states must account for emissions of gases, emitted from coal-fired power plants, which may condense to form PM _2.5.

In a narrow way, EPA’s decision to revisit these rules will likely lead to lower emissions of air pollutants subject to NSR in some cases.  At a broader level, these reviews ignore the fundamental problems with the NSR program and whether the NSR program is a dinosaur of command and control regulation that is not a cost-effective of achieving emissions reductions.

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In connection with the nomination of Cass Sunstein to head the Office of Information and Regulatory Affairs at OMB, I noted my hope that the Obama administration would be a Nixon in China moment for regulatory reform. Given the administration’s aggressive early steps to combat global warming and to roll back some of the more extreme moves by the Bush EPA, the new administration could, if it chooses, give regulatory reform back its good name.

So far, the signs are not encouraging. In February, EPA announced that it was deferring until May 18 the effective date of the NSR aggregation amendments that the Bush administration promulgated on their way out the door. Notwithstanding the midnight rulemaking feel to issuance of rules five days before inauguration of a new administration, the aggregation amendments seem to me to be little more than a common sense reform of an often mind-bogglingly complex set of regulations, i.e, the NSR/PSD rules. The aggregation amendments would have clarified EPA’s rules on aggregation of projects for NSR jurisdictional purposes so that only projects that are “substantially related” need be aggregated.

Unfortunately, the NRDC appears to be feeling its collective oats and, not surprisingly, EPA seems to listen the NRDC more than they listen to me. Last week, EPA announced that it was proposing to further defer implementation of the aggregation amendments, until November 18, 2009. 

While EPA has not yet withdrawn the aggregation amendments, this latest move has to mean that they are on life support.  I fear, to mix yet one more metaphor, that the baby of regulatory reform is rapidly going down the drain with the bathwater of the Bush administration.

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While a lot of attention has been paid to whether EPA would reverse the Bush EPA decision denying California’s petition to regulate greenhouse gas emissions from mobile sources,  it is now clear even outside the climate change arena that life at EPA is going to be substantially different under the current administration.  As if evidence were really needed for that proposition, EPA announced this week that it was putting on hold the NSR aggregation rule that EPA had promulgated on January 15, 2009.

The rule, which had been long sought by industry, would have provided that nominally separate projects would only have to be combined – aggregated for NSR/PSD purposes – if  they are “substantially related.” It also would have created a rebuttable presumption that projects more than three years apart are not substantially related. Responding to a request from NRDC and the OMB memo asking agencies to look closely at rules promulgated before the transition but not yet effective, EPA concluded that the rule raises “substantial questions of law and policy.” Therefore, EPA postponed the effective date of the rule until May 18, 2009 and also announced that it was formally reconsidering the rule in response to the NRDC petition.

To those in industry, the aggregation rule was not a radical anti-environmental roll-back of environmental protection standards.  Rather, it was more of a common-sense approach towards making the NSR program simpler and clearer.  It is one of my pet peeves with the prior administration, however, that it gave regulatory reform a bad name.  

In any case, I feel as though I should open a pool regarding what will be the next Bush-era rule to be tossed overboard.  We surely won’t have to wait long for it to happen.

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In addition to our post yesterday and the items highlighted in the New York Times Green.Inc blog on the difficulties facing new and existing coal-fired power plants this week, the Environmental Protection Agency and the Department of Justice have launched what they call a new national crackdown targeting coal-fired plants that violate the Clean Air Act.

As the first piece of this campaign, the agencies filed suit on Wednesday against a Kansas power plant for PSD violations dating back to 1994, and following a notice of violation issued to the plant owners in January 2004.   

EPA and DOJ  had been criticized for not pursuing new cases against power plants during the Bush administration, but it looks as though efforts to take on the coal industry are ramping up again.

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The EPA and DOJ announced yesterday that Kentucky Utilities (KU), a coal-fired electric utility, has agreed to spend approximately $135 million on pollution controls to resolve violations of the Clean Air Act New Source Review program.  KU will also pay a $1.4 million civil penalty plus $3 million in implementing supplemental environmental projects, or SEPs.  Finally, KU will also surrender over 50,000 SO₂ allowances shortly after entry of the consent decree, and annually surrender any excess NOx allowances resulting from the installation of pollution control equipment.   

The consent decree, which covers one of the three coal-fired electric generating units at the E.W. Brown plant in Mercer County, Kentucky, requires KU to meet the most stringent limit for nitrogen oxide (NOx) emissions ever imposed in a federal settlement with a coal-fired power plant.  According to the EPA's fact sheet, the new pollution control equipment will reduced combined emissions of SO₂ and NOx by more than 31,000 tons per year to just 10% of the 2007 emission levels.  KU has also agreed to install controls to reduce particulate matter emissions by approximately 1,000 tons per year.

Notably, one of the SEPs provides for KU to contribute $1.8 million towards a $7 million carbon capture and sequestration pilot project led by the University of Kentucky.

This Consent Decree is the sixteenth judicial settlement in the series of cases begun in 1999 against 32 plants in 10 states to bring the power plant industry into full compliance with the NSR and PSD requirements of the Clean Air Act.  It shows that although these cases have been around for a while, the EPA and DOJ are still focused on enforcement for NSR violations.

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In a decision that could have significant impact on states’ efforts to limit cross-border pollution, Judge Lacy Thornburg of the District Court for the Western District of North Carolina issued an affirmative injunction against the TVA this week, requiring it to install pollution control equipment at its facilities located nearest to North Carolina and imposing specific emissions limits from those facilities. The basis for the injunction was a finding, after trial, that the facilities created a public nuisance as a result of the air pollution transported from those facilities to North Carolina.

The decision is notable for a number of the findings and holdings.

• Generally speaking, compliance with regulations does not preclude a finding that air emissions constitute a nuisance. (The Court applied the nuisance law of the states in which the plants were located.)
• Ozone and PM_2.5 can create adverse health impacts at concentrations below the National Ambient Air Quality Standards (NAAQS). This suggests that facilities contributing to concentrations of air pollutants can be subject to an injunction requiring the facility to decrease emissions, even if the area is in attainment of the NAAQS.
• The Court looked to survey data indicating that Blue Ridge Parkway visitors would pay $328 in annual taxes in order to improve visibility. As many readers will know, this kind of survey research is extremely controversial and may lead to some extraordinary damages findings.
• The Court declined to impose an injunction against TVA facilities that were not proximate to North Carolina, essentially on the ground their impacts on North Carolina were de minimis. The court found that those plants against which an injunction was entered contributed to somewhere between 5% and 10% of ambient contaminant concentrations. The other plants contributed less 0.1% of ambient concentrations.
• The Court imposed a stringent schedule by when pollution control equipment must be installed. The Court gave the TVA 27 months to install scrubbers and 21 months to install SCRs. This time frame was substantially shorter than that proposed by the TVA.

The one piece of good news for generating plants was the court’s causation analysis with regard to more distant plants. That analysis, if followed, suggests it would be extremely hard for a public nuisance plaintiff to prevail in a global warming case, since the causative contribution of any facility or even group of facilities to the global warming problem is almost certain to be even more attenuated than for those TVA plants distant from North Carolina.

The decision undoubtedly gives downwind states a substantial hammer against upwind sources of contamination (and could be applied to water pollution cases as well as air pollution). Indeed, in the current set of Congressional negotiations, industrial interests could conceivably be tempted to accept more stringent emissions limits in return for preemption of state nuisance laws. It will be interesting to see how this plays out in Congress.

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On the better late than never front, I finally got around to reviewing the still relatively recent decision in United States v. Cinergy Corp. regarding the scope of injunctive relief available with respect to violations of the Clean Air Act’s New Source Review, or NSR, provisions. Although the decision was issued in mid-October, its significance is great enough to mention here.

As most readers here will know, the Cinergy case is one of the remaining NSR enforcement cases originally brought by the Clinton administration. The defendants had previously been found liable for NSR violations at the Wabash River power plant. The recent decision involved the defendants’ efforts to preclude the government from seeking retroactive injunctive relief, i.e., not penalties, and not prospective relief to prevent future violations, but injunctive relief intended to remedy, mitigate, or offset the prior violations.

The relevant statutory language, from § 113 of the CAA, provides that a court may “restrain” violations, impose penalties, and, critically, “award any other appropriate relief.” The court in Cinergy held that this broad language authorizes injunctive relief focused on past harm, rather than just restraint of future violations.

It is one thing to order restoration of an illegally filled wetland. In that context, such a remedy is understandable and its scope necessarily somewhat limited. In the case of air pollution, however, once the emissions have occurred, it is obviously impossible to identify the location of that pollution or the scope of the remedy appropriate for such past harm. In other words, demonstrating an appropriate nexus between the harm and the remedy will often be difficult, if not impossible. 

One obvious possible form of relief would be to calculate the excess emissions resulting from the non-compliance and require the defendant to overcontrol in the future until it has offset those excess emissions. Whether the court will order such an offset or any other form of remedial injunction is not yet known, because the court concluded that it needed to have an evidentiary hearing regarding what relief it should in fact order. However, the mere possibility that such relief may be available certainly provides the government with a significant hammer to use during settlement negotiations in pending or future NSR enforcement cases. 

One issue of concern is whether such relief might be ordered against a current owner of a facility even if the original NSR violation was caused by a prior owner. In that case, the prior owner is not capable of offsetting the historical excess emissions, but the current owner would have a strong equitable argument that a remedial injunction should not be imposed against it.

As always, some of these questions are obviously going to have to wait for future judicial decisions.

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There was a time when EPA was almost uniformly successful in defending its regulations in the courts. EPA would note the deference provided to agency decision-making under Chevron U.S.A. v. NRDC, remind the court of its expertise in interpreting some very complicated statutes, and the case would essentially be over. Not any more.

In recent years, as the Bush administration has embarked on some quite ambitious regulatory reform efforts, EPA’s record has slipped considerably. The most famous case at this point is Massachusetts v. EPA, in which the Supreme Court rejected EPA’s efforts to avoid regulation of greenhouse gases under the Clean Air Act. However, EPA has had a number of other significant failures in court. Of these, the continued rejection of EPA’s efforts to reform the New Source Review, or NSR, rules is perhaps most notable. In decisions in 2005 and 2006, the Court of Appeals for the District of Columbia threw out two critical pieces of EPA’s NSR reform effort.

Now, in the latest setback for EPA, the Court of Appeals for the 11th Circuit has vacated another piece of EPA’s NSR reform agenda. The rule at issue in the latest case would have precluded state and local regulatory authorities from imposing monitoring requirements beyond those required by EPA. While noting that its review was governed by Chevron, the Court concluded that the Clean Air Act “unambiguously precludes EPA’s interpretation.”

Given the change in administration that will occur next year, it is difficult to imagine EPA pursuing its NSR reform agenda for much longer. The more significant question is whether EPA’s efforts at NSR reform have done long-term damage to its ability to defend its regulatory choices in court.

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EPA’s enforcement efforts under the New Source Review, or NSR, program have had more twists and turns during the past ten years than it is possible to catalogue, at least in a blog post short enough to avoid crashing the server. In brief, EPA began under the Clinton administration an ambitious effort to bring NSR cases against numerous power plants. Those efforts have had substantial, though not perfect, success in court. Settlements with some targets have also yielded hundreds of million dollars in agreed-to upgrades in plant emission controls.

The Bush administration, of course, sought to amend the NSR regulations in ways that were inconsistent, at least going forward, with the pending enforcement actions. The Administration nonetheless continued to prosecute the cases that had already been brought, though at least for a time it decided that it would only bring new cases if they were consistent with its new NSR regulations. Still with me?

A settlement recently reached by EPA with St. Marys Cement, demonstrates that EPA’s NSR enforcement efforts still have some life. The settlement is the first by EPA with a company in the cement industry. All of the prior settlements were either with power plants or refineries. In the settlement, St. Marys agreed to pay $800,000 in civil penalties and to implement emission control projects. While the consent decree does not state the expected cost of the emission controls, these projects often cost in the millions or tens of millions of dollars.

There is no reason to think that the St. Marys settlement is a one-off by EPA. Other facilities in the cement industry should be assessing their potential NSR exposure, and any facility, whether power plant, refinery, cement kiln, or other major source, should assess the NSR rules in making decisions regarding facility maintenance or upgrades. 

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