PASSING LESS GAS

Posted on December 5, 2017 by Keith Hopson

While some still debate climate change, on 11/22/17, eight of the oil and gas industry’s biggest players signed on to a set of Guiding Principles for reducing methane emissions across the natural gas value chain.  BP, Eni, Exxon Mobil, Repsol, Shell, Statoil, Total and Wintershall, in collaboration with international institutions, NGOs and academics, drafted the Guiding Principles.

The five guiding principles are: continually reduce methane emissions; advance strong performance across value chains; improve accuracy of methane emissions data; advance sound policy and regulations on methane emissions; and increase transparency.  Click here for the entire Guiding Principles document.

It will be interesting to see if these “voluntary principles” eventually become enforceable regulations.  Likewise, it will be interesting to see if these guidelines become “industry standards” and, accordingly, whether by acquiescence, private litigation, or lender requirements, become de facto regulations.

Time will tell.

It is significant to see so many major oil and gas industry actors responsibly, firmly and publicly commit to both reduce methane emissions and advance monitoring.  Perhaps now others in the industry will be more inclined to join the responsible eight and commit to pass less gas.

GRID UNLOCK: WHOLESALE MARKET DEMAND RESPONSE PAYMENTS UPHELD

Posted on January 29, 2016 by Brian Rosenthal

By upholding FERC’s regulatory authority over demand response transactions, the Supreme Court finds FERC is properly regulating wholesale electricity market sales operating in interstate commerce (Federal Energy Regulation Commission vs. Electric Power Supply Association).  Associate Justice Scalia’s dissent criticizes the framing of the question.  While acknowledging  FERC’s regulatory authority over wholesale sales, he notes the statutory framework proscribes regulating other sales or those “not at wholesale,” suggesting a proper focus on whether there is a true sale at wholesale includes reviewing whether the prospective participant is in the business of reselling energy.  

Besides the regulatory impact and effect on the markets, Justice Kagan’s majority opinion sends waves by its impact on energy use or non-use.  As in peak periods it may be more efficient and easier to pay consumers for non-use versus paying generators to increase production, wholesale market operators developed demand response programs that pay consumers not to use available power.  Non-use has the complementary benefits of being less taxing on a grid and results in fewer emissions.  Thus, the reviewed and supported programs were viewed as resulting from market forces balancing supply and demand of wholesale electricity, which programs serve to improve competitiveness (may “drive down” generator bids), provide more efficient grid use, result in greater grid reliability, and, produce fewer emissions.

Additional parts of the opinion discuss: (i) the method and formula for compensating demand response payments similarly to those to suppliers, with an added review of whether resulting payment for the demand response is indeed cost beneficial; and (ii) whether the technical order was properly supported by “reasoned judgment” and “intelligibly explained,” and thus, not subject to being set aside as arbitrary and capricious.      

In short, the Court found that FERC did not go too far in affecting retail markets and regulated on the wholesale side.  Acknowledging the breadth of regulatory authority over affecting wholesale rates and charges must be read with “common sense” and care so as not to extend the same beyond its intended reach, the Court concluded that because wholesale demand responses result in reduced wholesale rates, the rules and regulations that govern same are a direct effect on the wholesale markets. 

In a footnote the Court notes even if states could achieve the same result by giving rebates to customers for non-use, the process would be less efficient.  The dissent uses this same example to support its view that the overall program in practice is the equivalent to offering credits to retail customers in excess of  FERC’s authority. 

FERC Commissioner Tony Clark’s post decision comments predict further judicial involvement as participants test jurisdictional limits.  He invites the Commission to re-evaluate its approved pricing mechanism, referred to by the commissioner as a “compensation regime that continues to be widely panned by market experts.

For another review of the case and its common sense outcome, see college member Seth Jaffe’s post.

A Fine Approach for Regulating Fine Particulate Matter

Posted on January 8, 2016 by Todd E. Palmer

The Wisconsin Department of Natural Resources (WDNR) is finalizing guidance documents which will simplify how air permit applicants demonstrate that their emissions do not cause or contribute to exceedances of the PM2.5 National Ambient Air Quality Standards (NAAQS).  This guidance is based upon a technical analysis showing that direct emissions of PM2.5 from most stationary sources do not meaningfully contribute to ambient concentrations of PM2.5.  Building on this conclusion, WDNR will no longer require air dispersion modeling to be performed for PM2.5 when issuing most air permits. This novel state approach to PM2.5 regulation should adopted by other jurisdictions.

As EPA shifts its focus to regulating smaller forms of PM, the chemistry associated with these smaller pollutants has added to the complication of regulation. With respect to PM2.5, it is a pollutant emitted directly by certain emission sources (e.g., combustion processes) and is also formed secondarily in the atmosphere by the chemical interaction of precursor pollutants (NOx, SO2, ammonia). To date, states have generally implemented air permitting policies that simplify these complications. For example, states may assume that a percentage of a source’s PM10emissions consist of PM2.5 or that direct emissions of PM2.5 have the potential to significantly contribute to ambient concentrations of PM2.5. These generalities and assumptions have presented problems for stationary sources, especially when performing the air dispersion modeling attendant to receiving an air permit.

Recognizing these problems, WDNR undertook its own technical analysis which concludes that dispersion modeling of direct PM2.5emissions does not provide information useful for understanding the impact of those emissions on ambient air quality. WDNR found that direct, industrial stationary source PM2.5 emissions do not correlate with the ambient concentrations of PM2.5 in the atmosphere around a stationary source. Rather, PM2.5 exhibits characteristics more like a regional pollutant influenced by the emissions from numerous sources dispersed throughout a broad geographic region. Using this premise, WDNR will be restricting the circumstances when PM2.5 air dispersion modeling will be required when issuing air permits and the instance where sources will be subjected to PM2.5 emission limitations.

In this draft guidance, WDNR proposes to no longer require estimating PM2.5 emissions from fugitive dust sources, mechanical handling systems, grain handling operations or other low temperature PM sources. Rather, PM2.5 emission estimates will only be required for combustion and high temperature industrial processes that directly emit significant amounts of PM2.5.  For these high temperature sources, WDNR will use a “weight of evidence” approach to conclude that direct emissions of PM2.5 do not cause or exacerbate a violation of the PM2.5 NAAQS or increments in ambient air. This will greatly simplify the manner in which air permit applicants must calculate PM2.5 emissions from a project, significantly limit the circumstances in which PM2.5 modeling must be performed as part of a permit application and restrict the instances in which PM2.5 emission limitations must be included in air permits.

Inverting the Inversions – Utah and the PM2.5 NAAQS

Posted on February 18, 2014 by James Holtkamp

The valleys and mountains of the Great Basin hold cold air in when a high pressure parks itself overhead, with the result that the valleys with significant populations, primarily the 100+ mile Wasatch Front, are subject to a wintertime PM2.5 grunge that builds up until the next storm front moves in to clear it out.

Although Salt Lake City and other parts of the state are in compliance with the annual PM2.5 NAAQS, exceedances of the 24-hour NAAQS have been recorded during inversion periods since 2006, when EPA lowered that standard from 65 μg/m3 to 35 μg/m3. As a result, Utah is going through an arduous PM2.5 state implementation plan (SIP) revision process to address the PM2.5 nonattainment.

Because we can’t change the topography around here or install fans large enough to blow air out of the valleys, the state must seek reductions in emissions that contribute to the wintertime PM2.5 exceedances. Nearly three-fifths of those emissions are from car and truck emissions. About thirty percent of the contributing emissions are from area sources and wood-burning fireplaces and stoves. And the rest of the emissions –only about a tenth of the PM2.5 precursor and direct emissions – are contributed by large industrial sources in the airshed.

The proposed SIP seeks some reductions from the large industrial sources, which must be retrofit not with RACT but with the equivalent of BACT, notwithstanding hundreds of millions of dollars of pollution control improvements already installed over the last decade. The rest of the PM2.5 emissions to be reduced during inversions must come primarily from mobile source and area emissions.  

The modeling underlying the SIP shows that attainment will barely be reached by the 2019 attainment date. But, with the D.C. Circuit throwing out the PM2.5 implementation rule a year ago and requiring EPA to promulgate a new one under more restrictive provisions of the CAA and the predictable citizen’s suits, who knows if attainment can be achieved short of literally turning out the lights and leaving town.

The Utah Legislature is in session and legislators are falling over each other trying to show that they care about cleaner air. However, there is not much state legislators can do, given that the emissions and fuel standards for mobile sources are set by the federal government (with states having the option of adopting California standards under certain circumstances). So, the state is squeezed between the Wasatch Mountains on the one side and the Clean Air Act on the other. It might be easier to cart off the mountains than to bring the Clean Air Act requirements into alignment with the real world.

Grant of Certiorari in Greenhouse Gas Regulation Litigation: Limited But Important

Posted on October 30, 2013 by David Buente

Of the 21 separate questions presented in the 9 petitions for writ of certiorari filed in the U.S. Supreme Court in Utility Air Regulatory Group et al. v. Environmental Protection Agency et al., challenging nearly every aspect of the Environmental Protection Agency’s recent greenhouse gas regulations—from the initial “endangerment” finding to the restriction on motor vehicle emissions to the stationary-source permitting requirements—the Court granted review of only a single issue:  “[w]hether [EPA’s] regulation of greenhouse gas emissions from new motor vehicles triggered permitting requirements under the Clean Air Act for stationary sources that emit greenhouse gases.”  Several commentators have interpreted this decision (reported in a prior post by Theodore Garrett) as an implicit affirmation of EPA’s regulatory regime, insofar as the Court chose not to address some of the broader challenges to the agency’s basic authority to regulate greenhouse gas emissions under the Clean Air Act.  But, whatever implications might be drawn from the Court’s decision not to grant review of certain issues, far more telling is the Court’s deliberate rewriting of the question presented, narrowly tailored to address the validity of the stationary-source permitting regulations.

Those regulations rest on an exceedingly questionable interpretation of the Clean Air Act.  The stationary-source provisions of the Act require any industrial facility that emits an “air pollutant” in “major” amounts—defined by the statute as 250 or more tons of the pollutant per year—to obtain pre-construction and operating permits from the local permitting authority.  42 U.S.C. § 7475.  EPA acknowledges that it would be “absurd” to apply these provisions by their terms to sources of greenhouse gas emissions, since nearly every business in the country (including even small commercial enterprises and residential facilities) emit greenhouse gases at more than 250 tons per year, and the agency can offer no reason why the statute should not be interpreted instead to apply only to the large industrial facilities that emit “major” amounts of a pollutant otherwise subject to regulation under the permitting provisions—i.e., one of the so-called “criteria pollutants” for which a national ambient air quality standard has been issued.  Nevertheless, EPA has interpreted the statute to apply to sources of greenhouse gas emissions and, to address the acknowledged “absurd results” created thereby, has decided that for these purposes the threshold for a “major” emissions source should be increased from 250 tons per year—as stated in the statute—by 400-fold, to 100,000 tons per year.  The agency has, in other words, literally rewritten the express terms of the statute in order to justify its preferred interpretation.

The dissenting judges in the D.C. Circuit severely criticized the result.  That is most likely the reason the Supreme Court granted review of the case, to correct the agency’s  interpretation of the Act and ensure that neither EPA nor other agencies attempt to redo legislative power in this way in the future.  Whether or not the limited nature of the certiorari grant can be viewed as an approval of EPA’s authority to regulate greenhouse gases from mobile sources, it almost certainly reflects suspicion—if not disapproval—of the agency’s stationary-source regulations.  The definitive answer should come by June 2014, when the Court is expected to rule. 

Smackdown Alert: Certiorari granted to review EPA’s GHG rules

Posted on October 15, 2013 by Theodore Garrett

The Supreme Court agreed today to review the EPA’s authority to regulate emissions of greenhouse gases from stationary sources.  The Justices accepted six petitions for review of the D.C. Circuit’s decision in Coalition for Responsible Regulation v. EPA (No., 12-1146 et al.), consolidated them for argument, and limited review to a single question:

“Whether EPA permissibly determined that its regulation of greenhouse gas (GHG) emissions from new motor vehicles triggered permitting requirements under the Clean Air Act for stationary sources that emit greenhouse gases.” 

The six petitions granted were filed by the Utility Air Regulatory Group, the American Chemistry Council, the Energy-Intensive Manufacturers, the Southeastern Legal Foundation, the U.S. Chamber of Commerce, and a number of states.

EPA’s position, as presented in the DC Circuit and in its opposition to certiorari, is that regulation of greenhouse gas emissions under Title II triggered permitting requirements under the PSD program and Title V of the Act, which apply to stationary sources emitting “any air pollutant” above the statutory threshold.  EPA has interpreted “any air pollutant” to mean “any air pollutant regulated under the Clean Air Act,” and thus when the EPA’s regulation of emissions from new motor vehicles took effect in January 2011, the permitting requirements under the PSD program and Title V automatically applied to stationary GHG sources above the statutory threshold.

In its petition, the US Chamber of Commerce noted that EPA acknowledged that its tailoring rule would create a result “so contrary to what Congress had in mind — and that in fact so undermines what Congress attempted to accomplish with the [statute’s] requirements — that it should be avoided under the ‘absurd results’ doctrine.”  With respect to the issue upon which cert was granted, the Chamber argued that EPA incorrectly determined that all “air pollutants” regulated by the agency under the Clean Air Act’s motor vehicle emissions provision, 42 U.S.C. § 7421(a)(1), must also be regulated under the Act’s Prevention of Significant Deterioration of Air Quality and Title V programs when emitted from stationary sources.

The Utility Air Regulatory Group petition expressly did not ask the Supreme Court to revisit its holding in Massachusetts v. EPA.  However, the UARG petition did ask the Court to consider whether its decision in Massachusetts v. EPA compelled EPA to include GHGs in the PSD and Title V programs when inclusion of GHGs would expand the PSD program to cover a substance that does not deteriorate the quality of the air that people breathe.  UARG emphasized EPA’s admission that regulation of GHGs under the Title I and Title V permit programs subjects “an extraordinarily large number of sources” to the Act for the first time, “result[ing] in a program that would have been unrecognizable to the Congress that designed PSD.” 

A coalition of environmental groups opposed certiorari, emphasizing that EPA’s endangerment and contribution findings and emissions standards for motor vehicles simply implement  the Supreme Court’s mandate in Massachusetts v. EPA.  They emphasize that the Petitioners’ arguments ignore the “air pollutant” definition that the Court in Massachusetts v. EPA held “unambiguous[ly]” (549 U.S. at 529) covers greenhouse gases. 

It is worth noting that four justices dissented in Massachusetts v. EPA, and the successful petitioners in Coalition for Responsible Regulation argue that Massachusetts does not compel the regulations at issue here.  The granting of the petitions for certiorari is sobering news for EPA. Stay tuned.

Game, Set, Match

Posted on April 29, 2013 by Michael Hardy

On September 14, 2011, I posted a blog piece that was entitled “A Tug of War: How Can the State Satisfy Its Burden of Proof?” This posting discussed the diametrically opposed decisions of an Ohio trial court and an appeals court on the important issue of the kind of evidence necessary to prove a violation of an air emission limitation in an operating permit.  This closely watched case in Ohio eventually reached the Ohio Supreme Court, which finally announced its decision on December 6, 2012.

In State ex rel. Ohio Attorney General v. Shelly Holding Co. the Ohio Supreme Court sided with the appellate court and ruled that the civil penalty calculation started on the date of the violation, as demonstrated by the failure of a stack test, and continued until the permitted source demonstrated compliance with the emission limitations.  Over the objections of Shelly and several industry amicus filings, the Ohio Supreme Court concluded that the state enforcement agency need not prove that the facility was operating out of compliance for each intervening day; such noncompliance can be presumed.

The issue arose, in part, because Shelly failed stack tests that were conducted under unrealistic, maximum-possible conditions when in fact day-to-day operations were likely to generate lower emissions.  The state argued that Shelly should have discontinued operations until a subsequent stack test successfully demonstrated adherence to the permit’s emission limitations.  Alternatively, the air pollution source could apply for and receive a new permit with different limits, or it could make intervening facility modifications that would enable it to pass the stack test.  Shelly felt that it was improper to presume that the facility would exceed its emission limits unless the state makes a prima facie showing that the violation is likely to be ongoing or continuing.

After concluding that the burden is on the violator to prove by a preponderance of the evidence that there were intervening days on which no violation occurred or that the violation was not continuing in nature, the Ohio Supreme Court found no constitutional problem with extending the penalty to those subsequent days after the failed stack test.  Thus, in Ohio, the beginning date for calculating a civil penalty for an air pollution control violation is the first date of demonstrated non-compliance (the failed stack test) and continues, even at lower operating rates, until the facility demonstrates a return to compliance.

While this decision arose in the context of an air permit, the State of Ohio is likely to cite it in other programs, such as NPDES permits.

COOPERATIVE FEDERALISM AND THE CLEAN AIR ACT ENCOUNTER TURBULENCE

Posted on December 14, 2012 by William Session

All of us know that enforcement of the Clean Air Act’s (CAA) proscriptions against pollutant air emissions is premised on the concept of Acooperative federalism.  We know that the CAA’s policy development and enforcement regime is based upon a division of state and federal regulatory responsibility.  Stated simply, the concept is that the federal government, through the EPA, sets standards for permissible emissions of substances affecting ambient air quality while individual states retain responsibility for implementing programs to enforce these standards. 

The States’ implementation mechanisms are aptly titled State Implementation Plans or SIPs.  SIPs are employed to demonstrate that federal and state air pollution regulations will allow counties in a particular state to meet federally mandated ambient air quality standards (NAAQS).  The SIP process approval results in pollution control requirements which govern and often times unduly complicate compliance efforts of state regulators.  They can also increase compliance costs borne by the regulated community.  One aspect of that conundrum is the fact that when States fail to meet deadlines for attaining these standards, the regulators themselves can face sanctions from EPA and even suits by the public.  Litigation and its costs complicate matters further.

As some regulators in Pennsylvania recently observed . . . [T]he current aggressive schedules for NAAQS reviews, State Implementation Plan (SIP) development and promulgation of Maximum Achievable Control Technology (MACT) standards are significant problems. Taken together, these inefficiencies are a resource drain on EPA, the states, the regulated community and the economy as a whole.  The messy situation described in this quote is the subject of this blog.

The turbulence inherent in this divided relationship has escalated in recent times fraying the long-standing statutory regulatory compact between the federal government and the States.   

An instructive example of the conflict of enforcement concept and reality engendered by the CAA’s cooperative federalism scheme was clearly highlighted in the recent case WildEarth Guardians v. Jackson.  This case dealt with EPA’s delays in approving SIPs or pollution control plans affecting discharges of fine particulate matter or PM2.5.  The plaintiffs in Wild Earth alleged that EPA failed to take final action under section 110(k)(2) and (3) of the CAA to approve SIP submittals in twenty (20) states meeting applicable requirements respecting the 2006 PM2.5NAAQS. 

In 2006, the U.S. Court of Appeals for the District of Columbia had found that EPA’s PM2.5 NAAQS had to change because it failed to adequately protect human health.  A change in this NAAQS required a change in States SIPs.  SIPs were proposed but languished at EPA.  Five years later, the plaintiffs in Wild Earth alleged that . . . [W]ithout infrastructure plans, citizens are not afforded full protection against the harmful effects of PM2.5 while seeking declaratory and injunctive relief.
 
Shortly after the suit was filed the plaintiffs and the EPA entered into a settlement. A consent decree called for the EPA to approve or disapprove SIP submittals for the 2006 PM2.5 standard as early as September 12, 2012 for some of the states involved and as late as February 13, 2013 for others.  The Consent Decree was entered and the case dismissed in May of 2012.  Case closed and compliance efforts back on track? 

Unfortunately, many of the underlying issues raised in Wild Earth, specifically, the lack of cooperation between the States and the federal government on implementation of the PM2.5 NAAQS have raged on unabated.  For example, eleven (11) states sued the EPA over the agency’s alleged failure to promulgate final NAAQS for PM2.5.  In New York v. Jackson the plaintiffs are seeking a declaration that EPA is in violation of Section 109(d)(1) requesting that EPA review, propose and promulgate a new PM2.5 NAAQS.  On June 14, 2012, EPA announced a proposal to strengthen the NAAQS PM2.5.  Almost simultaneously, the D.C. Circuit issued an order refusing to set a schedule for EPA to issue a new PM2.5 NAAQS. Am.Farm Bureau v. EPA.

These developments will inevitably spawn additional delays in PM2.5 related SIP modifications and EPA approvals. That is the point of these comments on this small corner of CAA regulation and enforcement.  Is the cooperative federalism underpinning of the CAA still workable?  Can court’s recognize and respect the concept when regulatory policy, administrative lethargy and real human health concerns collide? These comments and observations have focused on the PM2.5 issue mainly because it has come up in some recent work in our office. 

Without doubt other and more far-reaching examples of regulatory and judicial “turbulence abound, i.e., the raging fight over the EPA’s Cross State Air Pollution Rule (CSAPR).  In a dissenting opinion on the CSAPR case, on the concept of cooperative federalism, Judge Rogers had this to say. . . [T] he result is an unsettling of the consistent precedent of this court strictly enforcing jurisdictional limits, a redesign of Congress’s vision of cooperative federalism between the states and the federal government in implementing the Clean Air Act based on the court’s own notions of absurdity and logic that are unsupported by a factual record, and a trampling on this court’s precedent on which the Environmental Protection Agency was entitled to rely . . . .  Whew! 

So what are CAA practitioners to make of the mess Judge Rogers eloquently describes?  This blog entry offers no practical guidance for those laboring for an aggrieved client nor laments a bad result impairing enforcement prerogatives of the regulators.  Instead, I only point out that it may be time for a concerted effort to step back and reconsider whether the CAA’s cooperative federalism’s bifurcation of rule promulgation and enforcement continues to make scientific, policy or common sense in today’s world.

Legal Winds from New Directions Buffet California’s GHG Cap-and-Trade Program

Posted on June 28, 2012 by Michael R. Barr

Late in the fall of 2011, the California Air Resources Board adopted its groundbreaking cap-and-trade rules (CTR) for greenhouse gasses. ARB faced stiff headwinds at every step.  This month, one lingering legal tempest subsided while a new legal gale appeared on the horizon.  Each involves novel environmental justice claims and could snuff out CTR and similar programs in other states.

First, balmier breezes for CTR:  in a decision filed June 19, 2012, the California Court of Appeals rejected a 2009 mandamus petition filed by the Association of Irritated Residents (AIR) and other groups and upheld ARB’s climate plan under the “California Global Warming Solutions Act of 2006” (Cal. Health & Safety Code §38500 et seq., also known as “AB 32”).   The court recognized the magnitude of ARB’s challenge under AB 32 and held: “After reviewing the record before us, we are satisfied that the [ARB] has approached its difficult task in conformity with [AB 32], and that the [GHG] measures that it has recommended reflect the exercise of sound judgment based upon substantial evidence.  Further research and experience likely will suggest modifications to the blueprint drawn in the [ARB] scoping plan, but the plan‘s adoption in 2009 was in no respect arbitrary or capricious.” (p. 22).

In its 2009 mandamus petition, AIR et al. had challenged ARB’s overall plan to implement AB32, partly on the grounds that the plan’s CTR element did not adequately protect already overburdened local communities. The petitioners preferred “direct regulation” of GHGs at sources, another major element of ARB’s plan.  They asserted that the full benefits of AB 32 to communities surrounding major sources could only be obtained by controlling GHG emissions at each GHG source, rather than by adopting the CTR.  CTR would allow GHG sources to acquire and trade GHG allowances and/or GHG offsets resulting from GHG reductions in other communities, states, provinces or countries. 

Now, a new tempest:  earlier this month, AIR et al. filed a new complaint with EPA under title VI of the federal Civil Rights Act alleging that ARB had discriminated against African/American, Latino and Asian/Pacific Islander residents throughout California by adopting and implementing CTR. The title 6 complainants ask EPA to require, as a condition of continuing to provide federal financial assistance to ARB, that ARB reverse its decision to approve the CTR and adopt less discriminatory alternatives.  It is impossible to say how or when EPA will respond. 

Forecast:  ARB will continue to try to implement CTR on schedule in spite of all legal flurries. 

A lot is at stake now.  Under the CTR, ARB plans to conduct its first auction of GHG allowances in November of this year, which could raise tens of millions of dollars. Starting January 1, 2013, refineries, power plants and other major GHG sources throughout California must properly account for all of their GHG emissions and later surrender qualifying GHG allowances and/or GHG offsets to ARB for every ton of GHGs emitted during the first compliance period (2013-14).  Later this month, ARB plans to link its CTR to a similar program in the Canadian Province of Québec.  Please see the June 11, 2012 ARB Notice.

But all regulated and other interested parties are left with new questions about how these legal winds may affect:

•    The willingness of regulated companies and GHG traders to bid tens of millions or more for GHG  allowances at ARB auctions.
•    The willingness of other states to adopt cap-and-trade programs and link them to the ARB CTR.  U.S. states are now vulnerable to federal title VI complaints as soon as they adopt their own cap-and-trade programs.
•    The ability of ARB to contain the costs of AB 32 and minimize leakage by adopting the CTR and linking it to other cap-and-trade programs, as provided by AB 32.
•    The continued ability of California to maintain its own climate program and achieve its climate goals.

It surely looks like more westerlies are approaching the CTR on the legal radar.

EPA Proposes Carbon Dioxide Emissions Standard for New Fossil Fuel Power Plants

Posted on April 13, 2012 by Daniel Riesel

By Daniel Riesel and Vicki Shiah, Sive Paget & Riesel, PC

On March 27, the U.S. Environmental Protection Agency proposed a rule limiting carbon dioxide (“CO2”) emissions from new power plants fired by fossil fuels such as coal or natural gas.  The rule applies to new fossil fuel-fired electric utility generating units in the continental United States; they do not apply to existing units or new “transitional” units that already have received preconstruction air emission permits and that start construction within 12 months of the proposed rule’s publication in the Federal Register.

Covered power plants would be required to meet an output-based standard of 1,000 pounds of CO2 per megawatt-hour.  This standard favors natural gas over coal.  EPA states that “[n]ew natural gas combined cycle power plant units should be able to meet the proposed standard without add-on controls.”  By contrast, coal-fired power plants would not be able to meet this standard without carbon capture and storage technology, which is still under development and is expected to be quite costly – though EPA expects that the cost of such technology will decrease over time.

It is not clear whether the proposed regulation will have a significant effect on the energy industry, as the standard appears to reinforce current trends rather than require radical changes.  In the preamble to the proposed rule, EPA notes that, at present, “the industry generally is not building” coal-fired power plants and is not expected to do so “for the foreseeable future,” while natural gas is becoming more common as an energy source.   According to EPA, the 1,000 lb/MWh standard is already being met by 95% of natural gas-fired combined cycle power plants that commenced operation between 2006 and 2010.

The proposed rule (a New Source Performance Standard under Section 111 of the Clean Air Act) results from a settlement between EPA and a group of states and environmental groups.  These plaintiffs sued EPA in opposition to the agency’s refusal, in 2006, to establish greenhouse gas emission standards for new and modified power plants.  EPA was required to revisit this decision in the aftermath of the U.S. Supreme Court’s landmark decision in Massachusetts v. EPA, which affirmed EPA’s statutory authority under the Clean Air Act to regulate greenhouse gas emissions.

Under the settlement giving rise to the standard proposed last week, EPA had also agreed to establish CO2 emissions guidelines for existing fossil fuel power plants.  EPA has yet to propose such standards, and the time frame for its doing so is uncertain; EPA Administrator Lisa Jackson recently stated, "[w]e don't have plans to address existing plants."

The full text of the proposed rule is available here.  Public comments are being accepted under Docket ID No. EPA‐HQ‐OAR‐2011‐0660 at www.regulations.gov for 60 days after the proposed rule’s publication in the Federal Register.

Don’t Mess With Texas – EPA Loses Battle With TCEQ

Posted on April 2, 2012 by Eva O'Brien

If you live in Texas or have driven through the state, you know that our popular anti-litter campaign slogan is “Don’t Mess With Texas.”  This slogan may have also been appropriate for the 5th Circuit’s recent decision in Luminant Generation Company, et al. v. U.S. Environmental Protection Agency, No. 10-60891, slip op. (5th Cir. Mar. 26, 2012), where the court came down hard on the U.S. Environmental Protection Agency (“EPA”) for its very late disapproval of revisions to Texas’s State Implementation Plan (“SIP”) pertaining to standard permits for  pollution control projects (“PCPs”).   

In Luminant, the 5th Circuit noted that the federal Clean Air Act (“CAA”) “prescribes only the barest of requirements” for New Source Review (“NSR”) of minor new sources of air pollutant emissions.  It found that EPA had not identified a single violation of the CAA or EPA’s regulations and thus had no legal basis for its disapproval of the PCP Standard Permit provisions, striking down as arbitrary and capricious the “three extra-statutory standards that the EPA created out of whole cloth.”  Id. at 21.  Two of those standards referenced Texas law and a third was based on too much agency discretion in permit issuance.

Noting that EPA failed to act until three years after the 18 month statutory deadline for EPA action had passed, the court ordered EPA to expeditiously reconsider the SIP revision submission made by the Texas Commission on Environmental Quality (“TCEQ”), and compared the “sweeping discretion” given to the states in developing their SIPS to EPA’s “narrow task” of “ensuring” that the Texas regulations “meet the minimal CAA requirements that govern SIP revisions to minor NSR, as set forth in 42 U.S.C. § 7410 (a)(2)(C) and § 7310(l).”  Id.  The court then stated that this limited review “is the full extent of EPA’s authority in the SIP-approval process because that is all the authority that the CAA confers.”  Id. at 21-22.

For the past several years, the TCEQ and EPA have butted heads over various aspects of Texas’s SIP.  This was the third of three cases heard by the 5th Circuit on SIP reviews, albeit the first in which a decision has been rendered.  Oral arguments were held in the other two pending cases last fall – the first relating to Texas’ Qualified Facilities program, Texas Oil & Gas Association, et al. v. U.S. EPA, No. 10-60459 (5th Cir. filed Jun. 11, 2010), and the second relating to Texas’s Flexible Permit Program, Texas v. U.S. EPA, No. 10-10614 (5th Cir. filed Jul. 26, 2010). 

Of these three cases, the EPA’s disapproval of Texas’s Flexible Permit Program has caused the most tension between the agencies.  That program provides facilities with flexibility to reduce emissions by the most cost-effective means through allocation of emissions on a facility-wide basis rather than by source point, and has been a basic tenet of permitting in Texas since 1994.  The end result of the Flexible Permit Program—which Texas considers akin to the federal Plantwide Applicability Limit (“PAL”) under the New Source Review program—not only gave facilities greater flexibility and control, but actually reduced emissions and provided for compliance with all state health standards, as well as all applicable federal Clean Air Act requirements. 

Given that EPA’s delay in disapproving these last two aspects of the Texas SIP was even more egregious (effectively up to sixteen years), it is likely that the 5th Circuit will view the EPA’s actions in those cases with a similarly critical eye.  We in Texas hope that the court continues to call EPA to task for its past unpopular and unwarranted decisions with respect to Texas’s SIP.

Congress Seeks to Reverse EPA’s Utility Climate NSPS

Posted on February 29, 2012 by Deborah Jennings

By Deborah Jennings and Andrew Schatz

In the wake of expected Greenhouse Gas New Source Performance Standards (NSPS) for Electric Generating Units pursuant to Section 111 of the Clean Air Act, Congress has shown some early resistance.  On November 4, 2011, EPA submitted to the Office of Management and Budget (OMB) its proposed rule for regulatory review.  The proposed rule would require new and modified electric utilities to meet potentially stringent performance standards and emissions guidelines for greenhouse gases at a level that has been “adequately demonstrated” by existing technology.  42 U.S.C. § 7411(a)(1).  Although the stringency of such standards is uncertain, they could require installation of expensive technology controls for fossil fuel combustion power plants. 

In response, a group of 221 Congressmen submitted a letter on February 23, 2012 to OMB urging the White House to bar EPA from issuing its proposed NSPS rule.  The letter cited, among other things, concerns that the rules could require installation of costly technology, such as carbon-capture and storage, which they feared would increase electricity costs.  The 221 figure is significant, because it constitutes a majority of the House of Representatives, who along with the Senate, could pass a resolution overturning the rule (with Presidential approval or Congressional override of a veto) under the Congressional Review Act (CRA), 5 U.S.C. §§ 801-808.

Yet, history suggests it is very unlikely that Congress will reverse an EPA climate change regulation using the Congressional Review Act.  For starters, the CRA allows Congress to pass a disapproval resolution seeking to reverse a recently promulgated federal regulation by a simple majority vote (no filibusters) within 60 days of receiving the final rule or its date of publication in the federal register.  Thus, Congress has a very short-time frame to pass such resolutions in both the House and the Senate.  Moreover, the President can still veto the disapproval resolution.  At that point, Congress would need a two-thirds majority to override the veto.  In fact, Congress has only successfully used the CRA once, overturning a Department of Labor rulemaking on ergonomics passed in the waning days of the Clinton Administration. 

Such a scenario could shape up this time around.  EPA originally planned on issuing the proposed utility standards in July 2011 and the final standards in May 2012.  Since EPA has yet to issue its proposed rule, a final rule may not be expected until late 2012 or early 2013, at the conclusion of President Obama’s first term.

EPA Tries to Silence Employees Who (Weakly) Criticize Cap-And-Trade

Posted on November 11, 2009 by Rodney Brown, Jr.

Obama’s EPA finds itself embroiled in a controversy that recalls the Bush Administration: trying to control what the agency’s employees can say about climate change. Today’s controversy is more limited, and more nuanced, than earlier ones. EPA is no longer asking its employees to deny that climate change exists. Instead, EPA has asked two of its attorneys to stop identifying themselves as EPA experts when they publicly criticize a cap-and-trade system for regulating greenhouse gases. Still, I wonder why EPA cares.

EPA previously allowed the attorneys to criticize cap-and-trade as private citizens. The two wrote letters and opinion pieces claiming cap-and-trade doesn’t work, primarily because companies can buy “offsets” that allow them to continue operations without reducing their emissions. They claim a carbon tax would work better than cap-and-trade.

Their writings have not had much effect on the debate in Congress and elsewhere. So the two recently switched from the written word to YouTube, posting a carefully produced video in which they more assertively cite their EPA credentials and experience to justify their critique of cap-and-trade. And as Grist recently noted, EPA took the bait.

EPA should stop worrying about the two attorneys. The two fail to recognize that cap-and-trade works fine when it’s done right. In fact, EPA itself runs one of the most successful cap-and-trade programs in the world. Several years ago, EPA needed to reduce smog in the eastern US. Instead of using typical command-and-control regulations, EPA created the NOx Budget Trading Program. Just last month, EPA released a report on the results achieved by that program. According to EPA, “summertime NOx emissions from power plants and large industrial sources were down by 62 percent compared to year 2000 levels and 75 percent lower than in 1990.”

And the emitters were able to achieve these reductions at a lower cost by trading with other emitters who had cheaper options for compliance. Smithsonian magazine reported a recent estimate that businesses paid only $3 billion to achieve emission reductions that would have cost them $25 billion under traditional command-and-control regulation.

The two attorneys don’t even need to worry about companies finding ways to avoid compliance with the system. Last year, only two emitters failed to comply out of 2,568, even then by only a modest amount. This is not a system full of loopholes.

Finally, the two attorneys ignore the fact that their own agency, under the Obama administration, will get to write the rules for how companies comply with a carbon cap-and-trade system. Both the Waxman-Markey and Boxer-Kerry bills require EPA to write rules regulating how companies can use “offsets” to comply with the system. Surely the agency can write rules that make this cap-and-trade system work as well as the NOx system the agency already runs.

And one more thing: As Grist reports, many experts think that the alternative — a carbon tax — may not achieve the emission reductions we need. We can only guess what carbon price might lead to the right amount of emission reductions. We’ll get the tax revenues we predict, but not necessarily the carbon reductions.

So the two attorneys should lighten up on their criticisms. But even if they don’t, EPA should stop worrying about them so much.