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

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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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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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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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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As we previously noted, the recent Environmental Appeals Board decision in the Deseret Power matter raised the possibility that CO₂ and other greenhouse gases need to be considered in PSD reviews. On December 18, EPA Administrator Stephen Johnson issued an interpretation which concluded that GHG still do not need to be considered in PSD reviews.

Senator Boxer, not always known for her restraint, has already asked Attorney General Mukasey to reverse the interpretation, calling it “illegal.” Illegal or not, I’d guess that Senator Boxer will get her wish soon after January 20.

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As we have noted, there have been a number of arguments regarding the implications of a decision by EPA to utilize current Clean Air Act authority to regulate greenhouse gases. The Chamber of Commerce has been in the “sky is falling” camp. Nonetheless, environmentalists are already pressing President-elect Obama to regulate greenhouse gases under the CAA, without waiting for what could be a lengthy legislative process.

According to a story in the Daily Environment Report, at a recent forum held by the American Law institute and the American Bar Association, the prevailing view was that the sky would not fall and that EPA’s authority under the CAA is sufficiently flexible as to allow it to regulate greenhouse gases without regulating every source that emits more than 250 tons per year of CO₂, which is the usual major source threshold for criteria pollutants – and a level that is certainly exceeded by many, many, more facilities than are currently subject to regulations.

William Harnett, director of EPA’s Air quality Policy Division, identified at least two ways to avoid regulating sources that emit greater than 250 tpy of CO₂. First, he suggested that EPA could rely on “administrative necessity,” taking the position that it does not have the resources to regulate all sources above 250 tpy. Harnett also suggested that EPA could take the position that the result of regulating all sources above 250 tpy would be absurd – a proposition with which the Chamber of Commerce would probably agree – and therefore could not be what Congress intended.

I’m not sure that I would like to have had to defend either of these arguments in law school. However, as David Bookbinder, chief climate counsel at the Sierra Club noted, if EPA, business, and environmental groups all do not want EPA to regulate small sources of CO₂, then, as a practical matter, EPA should be able to find a way to make CO₂ regulation work under the existing CAA framework. That does not mean that everyone would be happy with the format of such regulations. However, if the Obama administration does not want to wait for Congress – or if they want to put pressure on Congress to act – EPA will probably figure out a way to regulate under the CAA.

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