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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The uncertain and often lengthy time to get permitting decisions is always near the top of the list of industry complaints. Section 165 of the Clean Air Act provides some relief by requiring certain permit decisions to be made within one year. Last week, in Avenal Power Center v. EPA, District Judge Richard Leon, in what may comfortably be described as a strongly-worded opinion, held that EPA may not circumvent the one-year limit on permit decisions by carving out from the one-year period the time spent by the Environmental Appeals Board reviewing EPA’s permit decision. 

In March 2008, Avenal Power filed an application for a PSD permit necessary to construct a new gas-fired power plant in the San Joaquin Valley in California. When EPA had not issued a decision within two years, Avenal sued. In February 2011, Gina McCarthy, head of EPA’s air office, announced that EPA would issue a permit decision by May 27, 2011. However, Judge Leon found EPA’s commitment to be “disingenuous,” because EPA's permit decision would be subject to EAB review, and EPA acknowledged that EAB review could take 6-18 months.

Judge Leon’s analysis was, in keeping with the statutory language, quite simple. Section 165 requires permit decisions within one year. EPA’s decision to provide appeals of permits to the EAB is a creature of regulation, not statute. The notion that EPA’s regulatory process could trump the statutory requirements is, to Judge Leon, “absurd.”

It is axiomatic that an act of Congress that is patently clear and unambiguous - such as this requirement in the CAA - cannot be overridden by a regulatory process created for the convenience of an Administrator, no matter how much notice and comment preceded its creation. "The rulemaking power granted to an administrative agency charged with the administration of a federal statute is not the power to make law. Rather it is the power to adopt regulations to carry into effect the will of Congress as expressed by the statute."

EPA apparently tried to persuade the court that section 165 is sufficiently ambiguous to give EPA discretion regarding whether it must squeeze the EAB process into the one-year time frame. Judge Leon’s response to what he called EPA’s “self-serving misinterpretation of Congress’s mandate”?

"Horsefeathers!"

One parochial note for my Massachusetts readers: Massachusetts DEP has recently announced that its permits – although labeled as “Final” – are not final until DEP's own internal adjudicatory hearing process has been completed. Massachusetts law has nothing comparable to Section 165 of the CAA, so MassDEP’s interpretation adds the insult of delay inherent in adjudicatory proceedings to the injury caused by the length of the normal permit process..

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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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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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On a day when ClimateWire reported that thousands of walruses are stuck on land because their usual summer home – sea ice – has disappeared, I’m beginning to wonder whether EPA’s stationary source GHG rules are similarly at risk. It may not be difficult for EPA to brush off a fairly over the top letter from Texas which basically asked EPA “What part of ‘hell no” don’t you understand?”

However, today Greenwire reports that Governor Freudenthal of Wyoming – a Democrat – is asking EPA to defer enforcement of GHG stationary source regulation. So is Ben Grumbles, head of the Arizona Department of Environmental Quality. Grumbles may be a Republican, but he was head of the water office under the Bush EPA, so he has to have some idea of the legal pressure for EPA to regulate GHGs following Massachusetts v. EPA. 

In addition to these latest requests from the states, ClimateWire had a separate story today which noted that Senate efforts to bar EPA from regulating GHG may still be alive and that Democrat Senators Nelson and Dorgan may support attaching the legislation to the EPA appropriations bill. Readers of this blog know that I am a fan of Senator Graham’s willingness to consider climate legislation, but EPA has to be worried if it is counting on Senator Graham’s prediction that the amendment will fail.

I have long said that EPA’s regulations are here to stay, because they are not only defensible, they are - in some form, at least - pretty much mandated by Massachusetts v. EPA. However, where the prevailing metaphor for the November elections is that of a GOP tsunami, one has to wonder whether there is a realistic possibility that, one way or another, EPA regulation of GHG under existing authority could be subject to significant delay.

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On August 12, in Sierra Club v. Otter Tail Power Co., the Eighth Circuit Court of Appeals dismissed the Sierra Club’s suit related to the Big Stone Generating Station, a coal fired power plant in South Dakota. In doing so, it disagreed with EPA and sided with what appears to be the majority on a question that has produced differing responses amongst the courts - whether the Prevention of Significant Deterioration (“PSD”) program prohibits only the construction or modification of a facility without a PSD permit, or whether it imposes ongoing operational requirements. Finding that PSD requirements are conditions of construction or modification, and not conditions of operation, the court held that violations related to the defendants’ failure to obtain PSD permits occurred at the time the modifications were made, and that the claims were thus barred by the statute of limitations.

The Sierra Club challenged three modifications undertaken at the Station: a 1995 change in fuel source from lignite coal to sub-bituminous coal; a 1998 boiler modification; and, 2001 changes which allowed the Station to supply steam to a nearby ethanol plant. In June 2008, the Sierra Club filed a citizen suit alleging, among other things, that the defendants violated and continued to violate the Clean Air Act in that they had failed to obtain PSD permits prior to the modifications and, as a result, were operating without appropriate permits and without abiding by best available control technology (“BACT”) limits that would have been imposed had PSD permits been obtained.

The Eighth Circuit upheld the district court’s dismissal of the case, basing its decision largely on the language of the PSD statute, which prohibit a facility from being “constructed” without meeting PSD requirements, and the citizen suit provision, which authorizes suit “against any person who proposes to construct or constructs,” as well as the related regulations.  Finding the language unambiguous, the court refused to defer to the contrary interpretation of EPA, which participated as an amicus party. The court rejected the argument that the CAA and PSD regulations should be interpreted as establishing operational duties based on the program’s purpose and the fact that PSD permits impose requirements on the operation of facilities, finding that such requirements are not enforceable independent of the permitting process. In addition to finding the Sierra Club’s civil penalty claims barred, the court held that its claims for equitable relief seeking to bring the Station into compliance with the Act were also barred. 

Under the Eighth Circuit’s reasoning, while a facility must obtain a PSD permit prior to construction or modification, and, having done so, must operate in accordance with the permit, if the operator fails to apply for such a permit, claims relating to its failure to obtain or operate pursuant to an appropriate PSD permit are barred unless brought within five years of the construction or modification. Given the potential difficulties involved in detecting PSD violations, the decision places a burden on plaintiffs seeking enforcement of PSD requirements to identify and file claims related to such violations as early as possible. Given that this issue has come up a number of times and there is some disagreement amongst the courts as to the right answer, it is possible that the Sierra Club will seek further review of this issue.

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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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First Kerry-Lieberman, then the Tailoring Rule – a busy week for climate change. Senator Kerry certainly did not miss the coincidence. He called the release of the Tailoring Rule the “last call” for federal legislation. I’ve noted before the leverage that EPA regulation would provide, but this is the most explicit I’ve seen one of the sponsors on the issue.

As to the substance, there are not really any surprises at this point. EPA is certainly working to soften the blow of GHG regulation under the PSD program. Here are the basics (summarized here):

January 2, 2011 – Facilities obtaining PSD permits for pollutants other than GHGs after that date will need to meet BACT for GHG (whatever that may be) if their GHG emissions will increase by at least 75,000 tpy.

July 1, 2011 – New facilities with emissions of at least 100,000 tpy of GHG will need to obtain a PSD permit and meet BACT (whatever that may be) for GHG, even if they do not need a PSD permit for other pollutants. Modified facilities with increases of at least 75,000 tpy will have to obtain a PSD permit and meet BACT (whatever that may be) for GHG, even if they do not need a PSD permit for other pollutants.

July 1, 2012 – EPA will conclude a further rulemaking to address smaller sources. EPA has already committed to not regulate sources with GHG emissions below 50,000 tpy and further stated that permits would not be required for smaller sources before April 30, 2016.

As I’ve subtly hinted above, we still don’t know what EPA thinks BACT for GHG may be. EPA has at least suggested that, with respect to coal plants, BACT may be Integrated Gasification Combined Cycle, or IGCC, and with respect to IGCC plants, BACT may be natural gas. If so, we’re not going to see many traditional coal plants permitted after this rule takes effect.

What about opposition to the rule? It’s near certain that someone will challenge it. While environmental groups support it and have suggested that opponents may not have standing, I’m skeptical. I think it likely that someone with standing will challenge it. I also think that there is a reasonable chance that the rule is overturned, because it’s not obvious to me that the courts will buy the “administrative necessity” argument. The more fundamental point is that I’m not sure it matters. If the Tailoring Rule is struck down, a court is still unlikely to vacate the rule. Instead, the court is likely to keep the Tailoring Rule in place, while giving EPA time to figure out how to comply with conflicting mandates in a way that doesn’t bring the world as we know it to an end.

At bottom, the problem isn’t the Tailoring Rule. The problem is that Massachusetts v. EPA makes regulation of GHG under the existing Clean Air Act inevitable absent congressional action. In other words, John Kerry is right; the Tailoring Rule is last call for the climate bill. I happen to agree with opponents that regulation of GHG under existing authority will be a nightmare. Even exempting small sources, PSD is just a terrible way to go – one of the last vestiges of command and control regulation and a nearly incomprehensible one, at that.

However, given Massachusetts v. EPA, Congress really only has two ways to fix the problem. The first would be to pass climate legislation. The second would be to pass legislation to preclude EPA regulation of GHG under existing authority. Right now, neither alternative seems likely, but once EPA rules are in effect, they’ll both be more tempting. We’ll see which we Congress moves.

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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 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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Last April, I noted that the one certainty associated with EPA regulation of greenhouse gases under existing Clean Air Act authority was that there would be unintended consequences. If anyone doubted that this would be so, they might want to read some of the comments submitted to EPA in connection with EPA’s proposed Tailoring Rule, which would exempt facilities emitting less than 25,000 tons per year of CO_2e from the PSD provisions of the Clean Air Act after CO_2e becomes a regulated pollutant under the CAA.

Greenwire has a helpful collection of some of the more notable comments. What I found most interesting is that the National Association of Clean Air Agencies, or NACAA, has told EPA that the transition to the new rule will not be as simple as EPA had thought – tough to disagree with that one – and that states will need more time to adapt their own regulations to the new regime. NACAA is thus proposing that EPA determine that CO_2e is a “regulated pollutant,” not when the mobile source rule is promulgated (expected in March 2010), but rather when those regulations take effect in 2011 or as late as January 2012. However, David Bookbinder of the Sierra Club, which has been generally supportive of EPA’s approach to the Tailoring Rule, took the position to Greenwire that EPA does not have the discretion to allow states more time.

Meanwhile, the Center For Biological Diversity, which has pretty much staked out the extreme left in this debate, is still saying that EPA is proposing to take too much time to regulate smaller CO_2e emitters. If anyone thought that EPA could propose a Tailoring Rule that would not be subject to litigation, the likelihood seems to be growing smaller daily.

I still think that, if a climate bill doesn’t pass and EPA regulates GHG under existing CAA authority, it will not be long after the program goes into effect that there will be an audible sound as every stakeholder in the nation slaps its actual or metaphorical forehead and says “Did we really do that?!”

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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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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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A few weeks ago, we noted EPA’s release of its long-awaited “Tailoring Rule,” specifying how EPA would apply its PSD program under existing Clean Air Act authority to greenhouse gases, once they definitively become a regulated pollutant under the CAA some time next spring. Today, the proposed rule was published in the Federal Register. Comments are due December 28.

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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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After a number of stories indicating that the prospects for climate change legislation were dimming for 2009, the convergence of a number of factors suggests that legislation may still be possible.

Yesterday, Senator Boxer and Senator Kerry released a draft of climate change legislation. This doesn’t mean that Senate passage is imminent. The bill has not been formally introduced and, like the early drafts of the Waxman-Markey bill, leaves some sections blank. Senator Boxer apparently intends to issue a mark-up of the bill sometime in October. One note for the politically-minded readers of this blog – just don’t call the bill “cap-and-trade” legislation. Senator Kerry stated that he does not know what “cap-and-trade” means and denied that this is “cap-and-trade” legislation – notwithstanding that it would cap emissions of CO₂ and allow regulated entities the right to trade allowances to emit CO₂.

Meanwhile, EPA continues to work on climate change regulations. Last week, OMB apparently completed its review of EPA’s proposal to apply PSD rules to sources of CO₂ greater than 25,000 tons per year. EPA apparently intends to issue the rules some time this week. 

Opposition to climate change legislation among the regulated community appears to be splintering. In the past week, three members of the U.S. Chamber of Commerce left the Chamber due to its intransigence on climate change. Perhaps even more tellingly, the Chamber yesterday issued a statement that it supports “strong federal” climate change legislation – though it still appears to oppose significant parts of the Waxman-Markey bill. The Chamber also stated that it prefers legislation to regulation by EPA. Finally, it is worth noting that the Chamber’s statement accused environmentalists of distorting its position, without addressing the withdrawal of three utility members.

The decision in Connecticut v. EPA allowing the public nuisance litigation against six generators to continue. If the threat of EPA regulation hasn’t been enough to tip the balance in favor of legislation, the threat of regulation by injunction may be enough to do so.

Whether these developments will be enough to push climate change legislation over the threshold remains to be seen. Certainly, they improve its prospects.

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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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According to an article by BNA published this morning, EPA may soon act to apply the prevention of significant deterioration (PSD) provisions of the Clean Air Act to facilities that emit more than 25,000 tons of carbon dioxide annually.  Presumably, EPA's action is either an effort to exert leverage on Congress to pass pending climate change legislation or to ensure that GHG are regulated in the event that legislation doesn't pass -- or both.  

Under the Clean Air Act, PSD applies to major new sources, which are defined by their emissions level -- for pollutants in identified industrial sources categories, the threshold is 100 tons per year, while for others it is 250 tons per year.  Assuming that EPA moves forward with its its proposed endangerment finding, the default assumption (and the doomsday scenario presented by the Chamber of Commerce) would be that all GHG sources greater than 250 tons or 100 tons, depending on the source, would be subject to PSD regulations.

As an example, per the General Reporting Protocol's conversion factors, burning only 265.3 tons of coal or 1,173 barrels of fuel oil would produce 250 tons of CO₂.  However, the 25,000 ton threshold is the same used by the EPA in the endangerment finding and its proposed mandatory reporting regulations, so seems likely to be applied here as well.

As we previously noted, the EPA's official current position on this point is still the memorandum issued December 18th by former EPA Administrator Stephen Johnson, which said that since CO₂ is not a regulated pollutant under the Clean Air Act, PSD does not apply.  However, current EPA Administrator Lisa Jackson issued a letter on February 17 stating that the agency will reconsider this position. 

As noted in the BNA article, there is reason to question EPA's authority to exempt small GHG sources from PSD requirements once GHG are found to be pollutants which endanger public health and the environment.  Moreover, EPA's record in defending creative interpretations of the Clean Air Act -- even where they are generally supported, such as in the CAIR regulations -- has not been sterling.  

The entire debate is likely to get messier before it is resolved. 

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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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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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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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