Obama Administration Withdraws Proposal to Lower the Ozone NAAQS

Posted on October 3, 2011 by Eva O'Brien

On September 2, 2011, President Obama directed EPA Administrator, Lisa Jackson, to withdraw the agency’s proposal to lower the primary National Ambient Air Quality Standard (“NAAQS”) for ozone, a component of smog.  The Administration’s justification for abandoning the proposal to tighten this air standard was the importance of reducing regulatory burdens and uncertainty for business at a time of uncertainty about an unsteady economy.  As a result, the 8-hour ozone NAAQS will remain at the current level of 0.075 parts per million (“ppm”), instead of being reduced to between 0.070 ppm and 0.060 ppm, as EPA had proposed.  Unless pending litigation results in the court speeding up the process, it is not expected that EPA will review this NAAQS final rule again until 2013.


Although the ozone NAAQS is not being reduced, the existing 0.075-ppm standard will result in significant areas of the country being designated nonattainment.  As a result, proposed industrial projects will be required to undergo more rigorous Nonattainment New Source Review permitting, and will need to offset nitrogen oxides and volatile organic compound emissions.  States with nonattainment areas may need to impose new emissions restrictions on existing sources as part of their State Implementation Plans in order to achieve compliance.  These consequences are not without costs.


Nonetheless, the Obama Administration’s action temporarily subdues the significant controversy that the March 2008 proposal and September 2009 revision had generated.  In the Bush-era’s March 2008 proposal, by attempting to establish the primary and secondary ozone NAAQS at 0.075 ppm, the primary standard was higher than the 0.060 to 0.070 ppm range recommended by the Clean Air Scientific Advisory Committee.  This resulted in allegations from environmental groups that the EPA was ignoring science in favor of business groups, while business and industry generally thought the standard was still too stringent.  Subsequently, EPA’s formal announcement in September 2009 regarding reconsideration of the rule to include lower standards led to heavy criticism that its estimate of cost impacts were too low, that the rule would strongly and negatively impact jobs and the economy, and that the agency was ignoring the science in order to push the philosophical agenda of environmental activist groups.

Perhaps the maxim that a good negotiation ends with no side being completely satisfied is applicable here—the Bush-era standard of 0.075 ppm upsets environmentalists and industry alike.  Unless the D.C. Circuit Court of Appeals turns up the timetable, both sides will have to be content (to be upset) until 2013.  In the meantime, perhaps the more interesting aspect of the Administration’s action was the political move that prevents further wrangling by Congressional members—a stream of senators and representatives have been taking jabs at environmental regulatory aims that they argue will harm the economy and job creation.  Throughout the NAAQS revision process, politics have certainly played a role, now to the point that perhaps electoral concerns may be directly influencing EPA’s regulatory agenda.  As other regulatory measures are still in the cross-hairs, including the air toxics standards for industrial boilers (Boiler MACT) and mercury and toxics standards for utilities (Utility MACT), we will undoubtedly continue to see politics play an important role in the implementation of new air standards and regulations.

 

For further information or questions about this article, please contact the author, Eva Fromm O'Brien.

NEW CROSS-STATE AIR TRADING RULE SCHEDULED TO BECOME EFFECTIVE IN OCTOBER

Posted on September 17, 2011 by Michael McCauley

On July 7, 2011, one year after the U.S. Environmental Protection Agency issued its proposed Clean Air Pollution Transport Rule, EPA released the final transport rule, now entitled the Cross-State Air Pollution Rule (CSAPR).  The CSAPR will become effective on October 7, 2011, 60 days after its publication in the Federal Register.  That is also the deadline for filing judicial challenges to the new rule.  One Petition for Judicial Review has already been filed in the D.C. Circuit Court of Appeals, and others are expected to be filed prior to October 7.

CSAPR will replace the Clean Air Interstate Rule (CAIR), which EPA promulgated in 2005.  The U.S. Court of Appeals for the D.C. Circuit vacated and remanded CAIR in July 2008.  However, in December 2008, the Court allowed CAIR to remain in place while EPA completed its remand rulemaking. 

CSAPR primarily addresses emissions from electric power plants in twenty-seven states located in the Eastern and Midwestern portions of the U.S.  The new rule generally requires covered, upwind states to reduce sulfur dioxide (SO2) and nitrogen oxide (NOx) emissions in order to enable downwind states to achieve or maintain compliance with the NAAQS for ozone and fine particulate matter (PM2.5).  CSAPR requires reductions of SO2 emissions, annual NOx emissions, and ozone-season NOx emissions.  A state may be subject to the reduction requirement for one or more of these types of emissions.  CSAPR establishes an emission budget and a variability limit for each state that is subject to an emission reduction requirement.  The budgets are established for two phases.  Phase I begins in 2012, and Phase II, under which more stringent state budgets apply, begins in 2014. 

Within the confines of the state budget, emission allowances will be allocated to covered sources.  Covered sources must comply with CSAPR by surrendering an allowance for each ton of SO2 or NOx emitted.  The sources are authorized to trade, bank, and utilize allowances issued under the relevant program.  However, as required by the D.C. Circuit decision, trading is only allowed within states; no interstate trading is permitted.

The states themselves will most likely play only a secondary role in the implementation of CSAPR.  EPA framed CSAPR as a federal implementation plan (FIP) program and set deadlines that generally do not allow enough time for each state to develop its own program to address interstate transport.  By taking these steps, EPA effectively preempted state discretion in determining how to meet at least the first phase of emission reduction obligations.  EPA decided to bypass the states because, in the Agency’s view, the states have arguably not met their Clean Air Act obligations with respect to implementing measures for achieving compliance with the 1997 ozone standard and the PM2.5 standards.  Concurrent with the issuance of CSAPR, EPA published a supplemental notice of proposed rulemaking which, if adopted, would include six additional states in the NOx ozone-season program.

While CSAPR’s structure and approach is generally consistent with the EPA’s preferred option under the 2010 CATR proposal, for many states, the final CSAPR rule is more stringent than the proposed CATR.  For example, the assurance provisions are effective starting in 2012 instead of 2014 as proposed in CATR.  In addition, the allowance surrender requirements under the assurance provisions have increased from one additional allowance per ton of emissions to two additional allowances.  NOx budgets for some states were reduced.

Electric power plants regulated under CAIR will be required to comply with the CAIR 2011 compliance requirements already in effect.  CSAPR will replace CAIR beginning in 2012.  EPA is currently developing federal implementation plans for each state covered by CSAPR to achieve the Phase I requirements in 2012.

Most power plants are expected to achieve the required emission reductions by operating existing air emission control equipment, utilizing low sulfur coal, or increasing electrical generation from cleaner generating units.  Some plants will be required to install new air quality control systems, such as low NOx burners or selective catalytic reduction (SCR) systems, scrubbers or dry sorbent injection capability.  CSAPR could lead to the retirement of some older, less efficient coal-fired units which have not already been upgraded with modern air quality control systems.

 

For further comments or questions, please contact Michael McCauley.

A TUG OF WAR: HOW CAN THE STATE SATISFY ITS BURDEN OF PROOF?

Posted on September 14, 2011 by Michael Hardy

There is ongoing litigation in an Ohio air pollution control enforcement case, which highlights the real world difficulties that arise from the regulatory requirement to test stack emissions under unrealistic, maximum, worst case conditions that do not correspond to day to day operations.  State ex rel. Ohio Attorney General v. The Shelly Holding Co., et. al., 191 Ohio App. 3d 421, 2010 – Ohio – 6526, 946 N.E. 2d 295.

Shelly owned a number of hot mix asphalt plants.  During stack tests to determine compliance with air pollution permit emission limitations,  several plants failed their tests.  Despite the failed tests, Shelly continued to operate those hot mix asphalt plants. The Ohio Environmental Protection Agency then brought an enforcement action, claiming that the continued operation of the plants after the failed tests constituted continuing violations even though the State had no monitoring data to prove that point.


The Trial Court rejected the State’s contention, stating that it was unwilling to infer a continued violation until Shelly successfully completed a subsequent stack test. “Simply put the Court does not find the requested inference to be reasonable given the fact that the State has the burden .  Further, the Court finds Shelly’s argument that a “stack test” does not represent normal operating conditions to be compelling.  Based on the foregoing, the Court will only consider the day of the “stack test” demonstrating excess emission to be evidence of a violation.” State ex rel. Ohio Attorney General v. The Shelly Holding Co., et. al. (Sept. 2, 2009), Franklin Cty. C. P. No. 07CVH07-9702.


The Court of Appeals of Ohio, Tenth Appellate District (which sits in Columbus, Ohio), reversed the Trial Court, stating that “…in determining the number of days each violation existed, the trial court should have concluded that the violation continued until the subsequent stack test determined that the plant no longer was violating the permit limitations.”  The Ohio Supreme Court has agreed to consider Shelly’s appeal of this ruling.  Shelly also has the amicus curiae support of  a number of trade organizations, including the Ohio Chamber of Commerce.

Arguing that the State has the burden of proof to demonstrate by a preponderance of the evidence each and every day of violation, Shelly seeks a ruling from the Ohio Supreme Court that would prohibit the State from showing, by mere inference, that there are ongoing violations of permits and regulations after a failed stack test.  Citing the record evidence that stack testing conditions are “snapshots” of operating conditions at the time of the test, typically “maximum, worst-case testing conditions,” Shelly claims there was undisputed evidence that those tests do not represent day-to-day operations. The State offered no evidence to show that stack test conditions are indicative of day-to-day operations.   Thus, Shelly argues, the proof of violation during a stack test does not necessarily show that the hot mix asphalt plant exceeded its permit limits during subsequent, more normal operations. Shelly also argued that the Tenth District incorrectly assumed that another stack test is the only way to show the reestablishment of compliance. Changes in operating conditions, restrictions on output or hours, and repairs may prove to be  easier corrections than awaiting another stack test that requires coordination with State schedules.  If a successful stack test is the only way to show compliance, the facility faces the Hobson’s Choice of shut down or, if it continues to operate, the possible inference of continuing violations (and fines).


In short, this case will be interesting to follow because it highlights the real world difficulties that arise from the regulatory requirement to test under unrealistic, maximum, worst case conditions that do not correspond to day to day operations.  While Shelly may be correct that it is improper to assume non-compliance during continuing, business normal operations after a failed stack test that proceeded under artificial conditions, there remains another difficult question for Shelly:  how to re-establish compliance in a mutually satisfactory way.  There is no doubt that the State regulatory authorities would balk at any ruling that would allow a regulated source unilaterally to change or curtail operations to attain compliance.

 

For questions and comments on this article, please contact Michael Hardy.

Where You Stand Depends on Where You Sit: Utility MACT Edition

Posted on August 30, 2011 by Seth Jaffe

As the deadline passed last week for submitting comments on EPA's Utility MACT rule, it's worth taking a big picture look at how the commenters line up. Big utility groups, such as the Edison Electric Institute and the American Public Power Association are looking for EPA to delay the rules. The basic argument is that it is going to take a long time to comply. EEI states that so many facilities will require extensions that the number of requests will create a backlog that will itself essentially create compliance problems.

However, it is not just environmental and public health groups that filed comments in support of the MACT rule. Exelon, which has a large nuclear fleet, submitted comments in support of the rule. In fact, Exelon referred to the "overblown critique" of the Utility MACT proposal, stating that the "lack of a national standard for toxic emissions continues to be a barrier to investment in new, cleaner generation capacity." Industry supporters are not limited to Exelon. The Clean Energy Group, which includes PG&E, Calpine, and other generators with large gas fleets, also focused on the "business certainty the electric sector needs to move forward with capital investment decisions."

In looking at these comments, it is worth keeping in mind that the Utility MACT rule is only one of nine rules under development by EPA that would impose costs on coal-fired power plants. This confluence of rules has been referred to as the "train wreck" for coal-fired power plants. While the Utility MACT rule may impose the greatest costs - and achieve the greatest benefits, according to EPA - many are concerned about the cumulative impact on coal-fired capacity. Earlier this week, the Congressional Research Service attempted to debunk the train wreck perspective:

The primary impacts of many of the rules will largely be on coal-fired plants more than 40 years old that have not, until now, installed state-of-the-art pollution controls. Many of these plants are inefficient and are being replaced by more efficient combined cycle natural gas plants, a development likely to be encouraged if the price of competing fuel - natural gas - continues to be low, almost regardless of EPA rules.

In any case, what's the argument against promulgation of these rules on the same time frame? Isn't that a good thing? There may be coal-fired plants which could sustain the capital investment required to comply with Utility MACT, but not the added cost of cooling water intake improvements to comply with new Clean Water Act requirements or the added cost of new disposal requirements if coal ash is regulated as a hazardous waste. Isn't it better to know about all of these rules up front, so that facilities can plan for the total cost of all the rules? Wouldn't a facility have legitimate cause to complain if the rules were instead issued seriatim, so that the facilities did not know about the full range of regulatory compliance costs when they make the decision whether to invest to comply with the first rule or instead to shut down?

A TUG OF WAR: HOW CAN THE STATE SATISFY ITS BURDEN OF PROOF?

Posted on August 8, 2011 by Michael L. Hardy

In a very interesting air pollution control enforcement case, the Court of Appeals of Ohio, Tenth Appellate District (which sits in Columbus, Ohio) issued an opinion that concerns many experienced practitioners:  State ex rel. Ohio Attorney General v. The Shelly Holding Co., et. al., 191 Ohio App. 3d 421, 2010 – Ohio – 6526, 946 N.E. 2d 295.

Shelly owned a number of hot mix asphalt plants.  During stack tests to determine compliance with air pollution permit emission limitations,  several plants failed their tests.  But Shelly continued to operate those hot mix asphalt plants. The Ohio Environmental Protection Agency claimed that the continued operation of the plants after the failed tests constituted  continuing violations even though the state had no monitoring data to prove that point. The Trial Court rejected the state’s contention, stating that it was unwilling to infer a continued violation until Shelly successfully completed a subsequent stack test. “Simply put the Court does not find the requested inference to be reasonable given the fact that the State has the burden .  Further, the Court finds Shelly’s argument that a ‘stack test’ does not represent normal operating conditions to be compelling.  Based on the foregoing, the Court will only consider the day of the ‘stack test’ demonstrating excess emission to be evidence of a violation.” State ex rel. Ohio Attorney General v. The Shelly Holding Co., et. al. (Sept. 2, 2009), Franklin Cty. C. P. No. 07CVH07-9702.

The Court of Appeals reversed the Trial Court, stating that “…in determining the number of days each violation existed, the trial court should have concluded that the violation continued until the subsequent stack test determined that the plant no longer was violating the permit limitations.”  The Ohio Supreme Court has agreed to consider Shelly’s appeal of this ruling.  Shelly also has the amicus curiae support of  a number of trade organizations, including the Ohio Chamber of Commerce.

Arguing that the state has the burden of proof to demonstrate by a preponderance of the evidence each and every day of violation,  Shelly seeks a ruling from the Supreme Court  that would prohibit the state from showing, by mere inference, that there are ongoing violations of permits and regulations after a failed stack test.  Citing the record evidence that stack testing conditions are “snapshots” of operating conditions at the time of the test, typically “maximum, worst-case testing conditions,” Shelly claims there was undisputed evidence that those tests do not represent day-to-day operations. The state offered no evidence to show that stack test conditions are indicative of day-to-day operations.   Thus, Shelly argues, the proof of violation during a stack test does not necessarily show that the hot mix asphalt plant exceeded its permit limits during subsequent, more normal operations. Shelly also argued that the Tenth District incorrectly assumed that another stack test is the only way to show the reestablishment of compliance. Changes in operating conditions, restrictions on output or hours, and repairs may prove to be  easier corrections than awaiting another stack test that requires coordination with state schedules.  If a successful stack test is the only way to show compliance, the facility faces the Hobson’s Choice of shut down or, if it continues to operate, the possible inference of continuing violations (and fines).

In short, this case will be interesting to follow because it highlights the real world difficulties that arise from the regulatory requirement to test under unrealistic, maximum, worst case conditions that do not correspond to day to day operations.   While Shelly may be correct that it is improper to assume non-compliance during continuing, business normal operations after a failed stack test that proceeded under artificial conditions, there remains another difficult question for Shelly:  how to re-establish compliance in a mutually satisfactory way.  There is no doubt that the state regulatory authorities would balk at any ruling that would allow a regulated source unilaterally to change or curtail operations to attain compliance.

 

 

California's Greenhouse Gas Cap and Trade Program Enjoined

Posted on June 8, 2011 by Robert Wyman

By: Bob Wyman and Aron Potash, Latham & Watkins LLP


A San Francisco Superior Court ruling on May 20, 2011, enjoins California from undertaking any further work to implement a greenhouse gas (GHG) cap and trade program until the California Air Resources Board (CARB) comes into compliance with the California Environmental Quality Act (CEQA) by more fully analyzing alternatives to cap and trade. While a setback to CARB, which had been planning to conduct spring workshops and summer rulemaking to finalize important unresolved aspects of its planned cap and trade program, the ruling in Association of Irritated Residents v. California Air Resources Board is less damaging than it could have been to CARB’s efforts to achieve the GHG emission reductions required by the Global Warming Solutions Act of 2006 (AB 32). The court’s earlier March 18 statement of decision threatened to put the brakes on not just the cap and trade program but also CARB’s entire suite of GHG reduction measures, including the low carbon fuel standard, the renewable electricity standard and other initiatives. So the court’s final order is significantly narrower in scope. Nonetheless, the cap and trade scheme is the centerpiece of the first economy-wide program in the United States to limit GHG emissions, and it is unclear whether that part of CARB’s program can commence as originally planned on January 1, 2012. While it works to complete a new CEQA alternatives analysis, CARB will almost certainly also appeal the judgment and seek a stay to keep cap and trade implementation on track.


This roadblock to California’s cap and trade plan was brought about when the Association of Irritated Residents (AIR) and others filed a petition for a writ of mandate alleging that CARB substantively and procedurally failed to comply with CEQA in approving the Scoping Plan, CARB’s detailed roadmap for reducing GHG emissions under AB 32. AB 32 was enacted in 2006 and requires the state to reduce GHG emissions to 1990 levels by 2020. CARB was charged with implementing AB 32 and approved the Scoping Plan in December 2008. Since that time, CARB approved a number of regulations contemplated by the Scoping Plan, including the GHG cap and trade program in December 2010. Many significant aspects of the cap and trade program remain unresolved, however, and CARB workshops and rulemakings were planned for this spring and summer with the intention of finalizing such critical program components matters as the allocation of free GHG allowances, the use of auction revenue, the generation and use of offsets, and the designation of GHG intensity benchmarks for regulated sectors.


In its March 18 statement of decision, the court found that CARB violated CEQA by failing fully to evaluate possible alternatives to the measures described in the Scoping Plan. Focusing on the cap and trade program, the court wrote: “ARB’s extensive evaluation of the proposed cap and trade program…provides the public with information about cap and trade only. CEQA requires that ARB undertake a similar analysis of the impacts of each alternative so that the public may know not only why cap and trade was chosen, but also why the alternatives were not.” The March 18 decision specifically criticized the Scoping Plan CEQA analysis for failing to discuss in detail a carbon fee alternative to cap and trade. Cap and trade is not a “fait accompli,” the court wrote.


The court set forth its remedy in the new May 20 ruling, ordering that its writ “shall specifically enjoin ARB from engaging in any cap and trade-related Project activity that could result in an adverse change to the physical environment until ARB has comes [sic] into complete compliance with ARB’s obligations under its certified regulatory program and CEQA, consistent with the Court’s Order. This includes any further rulemaking and implementation of cap and trade…” The Court also ordered CARB both to take no action in reliance upon the Scoping Plan as it relates to cap and trade and to set aside the executive order approving and certifying the CEQA analysis of the Scoping Plan. Although the intent of the ruling appears to be to halt work only on the cap and trade component of the AB32 program, this second portion of the court’s order potentially opens the court’s decision and the validity of the other Scoping Plan measures to attack on the ground that a court may only have the authority either to invalidate a CEQA approval in its entirety or not to invalidate any portion at all. The court’s path of partially invalidating a CEQA action remains an uncertain area of California law.


CARB will almost certainly appeal the decision and seek a stay of the judgment during the course of the appeal. The next battle in this case will likely involve CARB arguing that its appeal of the court’s writ automatically stays the judgment—allowing cap and trade rulemaking to continue apace—and AIR arguing that CARB will have to obtain a writ of supersedeas in order to stay the judgment. This battle will hinge in part on how the reviewing court characterizes the lower court’s writ (e.g., whether it is prohibitory or mandatory in nature) and on the whether the reviewing court sees the lower court order as overbroad in its limitations on CARB’s rulemaking activities.

EPA Stays New Boiler MACT Standards

Posted on May 20, 2011 by Karen Aldridge Crawford

By:  Karen Aldridge Crawford and Stacy Kirk Taylor

Facing opposition from a number of business groups and trade organizations and resistance from Capitol Hill, EPA announced on Monday, May 16, 2011 that it was staying indefinitely the effective dates for the new emission standards for boilers (i.e. the boiler MACT standards) that the EPA issued in February of this year.

Acting under a court mandated deadline, EPA finalized the new regulations in February even though the regulations as enacted varied significantly from the initial draft rules issued for comment. Given the significant difference, EPA tried to provide an opportunity for further comment and input, but the Court denied EPA's request for a 15 month extension for issuing a final rule. As a result, EPA went ahead and issued the final rule but immediately issued a reconsideration notice and agreed to continue to receive public comments. This left the regulated community in the untenable position of investing a significant amount of money into technology to comply with the final regulation, when EPA was still reviewing the final regulations and therefore the requirements could change (in which case one may have invested significant money into an unnecessary or misdirected technology).

With an effective date for the new regulations of May 20, 2011, several industry groups, including the National Association of Manufacturers, the American Petroleum Institute, the American Chemistry Council, and the U.S. Chamber of Commerce, petitioned the EPA for a stay of the effective date. A stay would extend the effective date of any new regulations beyond the deadline provided under the Clean Air Act. EPA, however, acting under authority provided agencies in the Administrative Procedures Act to delay new rules "when justice so requires," agreed to a stay the new regulations to provide EPA an opportunity to seek and adequately consider additional comments on the new regulations before requiring facilities to make significant investment in technology. EPA also announced that it will continue to collect data and comments from stakeholders until July 15 of this year, at which point it will start reworking the new rules. 

The Importance of Accurate and Complete Title V Air Permit Compliance Certifications

Posted on March 24, 2011 by Michael McCauley

At this time of year, most companies with facilities which have Title V air operating permits have either filed, or are preparing to file, annual compliance certifications and semi-annual compliance monitoring reports with their state air agencies. It is good to remember how important these documents are and why special attention must be paid to insure they are completed accurately and wisely.

Here are some thoughts on why Title V compliance certifications and semi-annual monitoring reports are so important:

  1. Each permitted facility should take great care in developing its annual compliance certification – especially if the plant is reporting "deviations" or "exceptions" from the permit requirements or violations of the permit limits. Such a certification must be viewed as a self-reported "Notice of Violation" and as an important, first-step enforcement document. The permitted facility should not just report problems and non-compliance items without also describing and explaining the corrective actions which have been taken to resolve the problems.
  2. Once a Title V certification is filed with a state agency and/or federal EPA, the facility can be fairly certain state and federal enforcement staff will be looking at it with a view toward possibly commencing formal enforcement proceedings to resolve any problems which are identified. Even if the state and federal agencies exercise their enforcement discretion and choose not to act, environmental groups can and sometimes do file citizen enforcement lawsuits to directly enforce the terms of the permit in federal court. Because the violations are "self-reported," a federal court will almost certainly impose some level of civil penalty in a Citizen Suit. If that happens, the defendant company must not only pay the civil penalty -- but also the attorneys fees and costs of the plaintiff environmental group which commenced and pursued the action.
  3. For the above reasons, it is important that all Title V compliance certifications be reviewed and approved by company counsel -- either in-house attorneys or outside counsel -- in advance of filing. This process is especially true if exceptions or deviations are being reported. Counsel should also be involved to insure the "reasonable inquiry" requirements have been met before the "Responsible Official" of the company signs the certification. If the certification is not true, accurate and complete, both the responsible official and the company can be subject to prosecution.
  4. These suggestions apply to companies of all sizes which are subject to the Title V air permit program. If a company does not have an in-house lawyer on staff, it should consider seeking the advice of outside counsel. It is important to have the right kind of legal advice available in this area. Simple mistakes and oversights made in the Title V certification process can later prove to be very expensive.
  5. Like anything else, this process can be managed effectively so that a company can avoid unnecessary risks of legal liability. However, it takes foresight, planning and knowledge of the process in order to navigate safely through the Title V compliance certification process.
  6. And remember the old adage: "An ounce of prevention can be worth a pound of cure!"

EPA Takes Measured Approach on First-Time GHG Permit Limits

Posted on March 7, 2011 by Deborah Jennings

 

In its first acts since GHG limits took effect under Prevention of Significant Deterioration (PSD) regulations, EPA has tried to walk a fine line between imposing stringent controls and not overplaying its hand in the face of Congressional reluctance.

 

 

In response to the first state-issued PSD permit with GHG controls since GHG limits went into effect January 2, EPA Region VI officials are seeking stronger GHG limits than Louisiana is requiring. The Louisiana Department of Environmental Quality (DEQ) recently finalized a PSD permit for a new iron and steel facility by Nucor Corp. on January 27, but declined to make any changes to GHG limits in the draft permit, including those suggested by EPA. It is unclear whether EPA will object to the permit’s issuance, but EPA was clearly dissatisfied with the permit for failing to establish a mass or CO2-equivalent limit, instead proposing a limit of “good combustion practices” based on an efficiency limit. “When determining a PSD permit limit, a permitting authority must establish a numeric emissions limitation that reflects the maximum degree of reduction achievable for each pollutant subject to BACT,” EPA stated in its January 7 letter to LDEQ. EPA also faulted the permit for failing to: include adequate monitoring for CO2 control; evaluate carbon capture and sequestration as an available technology; include a BACT analysis explaining how the control technology was selected; and provide baseline GHG emissions rates from the plant. Essentially EPA’s comments largely follow the agency’s position that GHG permitting should not differ from other air pollutants. 

 

 

While EPA sought to send a strong message to Louisiana, it has taken a lighter approach on stalled permits, exempting several of them from the new GHG limits.  In response to several PSD permit applications that have languished with EPA, the agency noticed its intent to exempt several permits that have yet to be issued from complying with emissions limits that took effect after the permit application date. The proposed new policy arose, as stated in EPA’s January 31 declaration in Avenal Power LLC v. EPA, exempting Avenal’s proposed 600 MW natural gas combined cycle power plant from GHG limits, the new SO2 hourly NAAQs (effective Aug. 23, 2010), and new hourly NO2 limits. The decision was made after Avenal applied for a permit in 2007 and sued EPA for failing to comply with PSD regulations requiring the agency to act on the permit within one-year of the application. EPA will issue a public notice requesting comment on the proposed policy. If the final policy is consistent with EPA’s declaration, several similarly situated entities whose permits have been delayed by EPA inaction could find themselves free from GHG limits in their newly issued permits.   

A New Twist on Potential to Emit

Posted on February 15, 2011 by Michael L. Hardy

Seasoned Clean Air Act lawyers have grappled with the application of the concept of "potential to emit" in permit applications and in other regulatory settings. In virtually every decade since the 1970's, there has been a significant judicial ruling, codified regulation or guidance document that attempts to elucidate the principles of "potential to emit" for purposes of permitting and enforcement.

A recent decision of the Court of Appeals of Ohio, Tenth Appellate District (which sits in Columbus, Ohio) undertook a review of the significant case and regulatory developments on the topic. State of Ohio ex rel Ohio Atty. Gen. v. The Shelly Holding Co, et. al., resulted from an appeal of a lengthy enforcement case over the alleged failure to secure the proper permits for asphalt plants. The concept of "potential to emit" played a significant role in the enforcement case at the trial court.

 

Ohio alleged that Shelly violated the air pollution laws at a number of its asphalt plants and portable generators by failing to obtain appropriate Title V "major source" permits before commencement of operations, among other things. Shelly, on the other hand, maintained that these plants were minor sources by reason of the restrictions Shelly voluntarily imposed on operations to keep emission levels below the regulatory triggers. After a lengthy bench trial leading to a record of over 2000 pages, the court found in favor of the State on 13 of 20 counts and assessed a civil penalty of $350,123.52 against Shelly. Nevertheless, Ohio appealed on several grounds, including the trial court's application of the "potential to emit" to the defendants' facilities.

According to Ohio, "potential to emit" requires a stationary source's potential emissions to be calculated on the basis of the source's maximum capacity to generate emissions – that is, worst case conditions 24 hours per day, 365 days per year, or 8,760 hours per year, unless there was a federally enforceable permit that imposed temporal or capacity limits on the operations. The trial court accepted Shelly's self-imposed limits, which it had placed in its permit applications, as effective limits for determining the "potential to emit" and rejected Ohio's insistence that federally enforceable limitations represent the only exception to the maximum design capacity as the basis for "potential to emit." Under Ohio's argument, "federally enforceable" limits as the only exception would arise through a permits issued through Title V notice and comment procedures.

The Court of Appeals reversed on the grounds that a source owner's voluntary restrictions are insufficient. While the restrictions need not be federally enforceable, they must be legally or practically enforceable by the state. Thus, they could arise from a duly granted permit to install or permit to operate under state law. The problem in this case is that Ohio's permit backlog meant there were periods of operation without formal permits to operate. But the Court of Appeals decided that "…an owner cannot be penalized for the Ohio EPA's failure" and delays. The appellate court remanded the case to the trial court to reconsider the scope of the penalties in light of its instructions. The state agency's delay in properly processing the state issued permits could affect the amount of penalties.

Another interesting issue arose from Shelly's failure to pass a stack test. The trial court accepted Shelly's argument that a stack test does not represent normal operating conditions, but rather is "snap test and does not relate to day-to-day operations, so that only the day of the (failed) stack test should constitute a violation and warrant a fine." Failing at high load conditions does not mean that it would fail at lower load levels. Rejecting the trial court's conclusion, however, the appellate court directed the trial court, in determining the number of days of violation, to presume that the violation continued until a subsequent stack test passed. Thus, the appellate court seems to disregard other ways, like engineering calculations, to show compliance during normal day-to-day operations.

Shelly has not sought to appeal this decision to the Ohio Supreme Court, but is currently preparing to do so.

ARE THE NAAQS AN OBSOLETE CONCEPT?

Posted on February 8, 2011 by Roger Ferland

* My thanks to Gary E. Marchant, J.D., Ph.D., Lincoln Professor of Emerging Technologies, Law & Ethics, Center for Law, Science & Innovation at Arizona State University. He is the brains behind this blog entry.

 

One of the founding principles of the Clean Air Act is the National Ambient Air Quality Standards or NAAQS. Attainment and preservation of the NAAQS is the goal of State Implementation Plans, the permit system is intended to protect the NAAQS and most of the technology-based emission limitations are for the control of NAAQS-based pollutants. However, several of the premises for setting the NAAQS are no longer either scientifically or legally supportable.

After almost forty years, the criteria for establishing the NAAQS are settled.

  • The level of the NAAQS must protect public health with "an adequate margin of safety."
  • In setting NAAQS, EPA cannot consider the cost or feasibility of achieving it.
  • The NAAQS must not only protect the general public, but also there must be an absence of adverse effects on "susceptible" or "sensitive" subgroups and individuals.
  • According to EPA, "susceptible" subgroups and individuals can be defined by:
    • Life stages, e.g., children, the elderly or pregnant women
    • Prior immune reactions
    • Disease state, e.g., asthmatics
    • Prior damage to cells or all systems
    • What is called "genetic polymorphism," the small, but significant percentage of the population who have genetic susceptibilities to certain toxins

 

The problem is that if EPA declares that the NAAQS must prevent adverse health impacts on this range of susceptible subgroups and individuals, the only level that can prevent adverse effects across the range is zero.

For the last three decades the achievement of no adverse clinical effects with an adequate margin of safety has caused the NAAQS to be set at lower and lower concentrations. Indeed, the controversy over a more and more stringent ozone NAAQS was heightened by a recent EPA study that showed decreased lung functions among even healthy individuals at 0.060 µ/m3. These, however, are only clinical adverse effects. If all toxcogenomic or gene expression changes that are indicative of a toxic response are considered, it is hard to justify any concentration but zero for the NAAQS. As EPA has acknowledged in criteria documents for the PM-10, lead, ozone and NOx NAAQS, genomic susceptibility plays an adverse role in responses to inhalation of these pollutants, particularly with respect to specific individuals or certain groups. For these individuals or groups there is no concentration of NAAQS pollutants that will guarantee an adequate margin of safety. For example, 100,000 Americans have a condition called an alpha-1 antitrypsin deficiency. People with this condition are predisposed to emphysema and other serious lung diseases from exposure to any level of smoke or dust. Similar genetic susceptibility to any level of certain pollutants above zero can be shown for a wide range of pollutants, individuals and genetically sensitive groups.

The point in all of this is that if we continue to require a no adverse effects with an adequate margin of safety as a minimum criterion for the NAAQS with no consideration of cost or practicable achievability, the inevitable result will eventually be a scientific train wreck.
 

USEPA Continues the Evolution of Its Clean Air Transport Rule

Posted on January 31, 2011 by David Flannery

EPA proposed its Clean Air Transport Rule (CATR) on August 2, 2010. The CATR would require extensive additional emissions controls on Electric Generating Units, or EGUs, in a 31 state area, purportedly for the purpose of attaining ozone and PM2.5 NAAQS and eliminating “significant contribution” to nonattainment (transport) from upwind states to downwind states.

 

The electric power industry submitted extensive comments on the CATR which provided EPA with new studies that demonstrate EPA’s failure to account for dramatic improvements in air quality in recent years and its failure to recognize future air quality improvement due to existing regulatory requirements. In particular, this data show that the proposed CATR ozone objectives can be achieved with no new controls beyond the existing regulatory requirements. The same study also concluded that PM2.5 objectives of the proposed CATR can be achieved with no new controls beyond the existing regulatory requirements, with the possible exception of additional local controls at the Allegheny County, PA and Brooke County, WV locations.

 


On January 7, 2011, EPA published its third Notice of Data Availability (NODA) with respect to CATR. The latest NODA provides data on potential allocation mechanisms and seeks comments on alternative approaches. EPA received numerous comments on allocation issues as a result of proposing the CATR. Following up on the comments, EPA analyzed allocation mechanisms for existing EGUs and is now providing data that it believes might support two alternative allocation mechanisms.
 

The two options include:

Option 1, which would allocate a state’s existing unit budget based on each unit’s proportionate share of the state’s total historic heat input. For each covered unit, annual heat input values for the baseline period of 2005 through 2009 would be identified using data reported to EPA or, where EPA data are unavailable, using data reported to the Energy Information Administration (EIA). For each unit, the three highest, non-zero annual heat input values within the 5-year baseline would be selected and averaged. 


Option 2, which would yield the same initial allocation pattern as Option 1 (based on historic heat input) but would then add a constraint (i.e., a limit on allocations) based on a unit’s reasonably foreseeable maximum emissions under the proposed Transport Rule trading programs. For those units with heat input-based allocations that would exceed historic emissions, this option would limit allocations so that the units would not be given allowances in excess of their reasonably foreseeable maximum emissions.

 


EPA is requesting comments through February 4, 2011 on the two allocation options and four other issues, including (1) the implications of the alternative allocation methodologies for the proposed assurance provisions; (2) an alternative approach to calculate allowance surrender requirements at the designated representative level for the assurance provisions; (3) a methodology for distributing allowances to new units that locate in Indian country within the Transport Rule region; and (4) possible options for states wishing to submit State Implementation Plans (SIPs) providing for state allocation of allowances in the Transport Rule trading programs. The NODA included references to state auctions of allowances in the description of acceptable options.

 


In other developments related to the transport rule, U.S. EPA announced in December 2010 that it needs until July 29, 2011, to complete the ozone NAAQS. With its second transport rule intended to implement this revise ozone standard, it is now uncertain as to when that proposal can be expected.

Regulatory Uncertainty and Structural Unemployment

Posted on January 26, 2011 by Kevin Finto
Almost every day we hear about the seemingly glacial pace of the current recovery and the unfortunate persistence of unemployment.  Some of the discourse has focused on regulatory uncertainty, more specifically, the numerous and amorphous dictates of health care and financial reform and whether they are a cause of structural unemployment.  Less often we hear similar concerns about EPA’s rule for green house gases.
 
 
            More pernicious to unemployment than these high profile government actions, however, are relatively small revisions to the law through agency actions on permits, orders and guidance, without the benefit of any rulemaking required by the Administrative Procedure Act (“APA”). This pattern of agency behavior creates not only uncertainty as to what the law is but also the perception, if not the real risk, that an agency might change the law at any time. This uncertainty inhibits the trust and confidence necessary for investment that create employment. A couple of recent examples illustrate this risk.
 
Particulate Matter Regulation
 
            Particulate matter has been regulated under the Clean Air Act since its inception. Over time, the regulated form or portion of the particulate matter has changed as EPA has focused on fine particulate and its potential for respiratory damage. In 1985 EPA issued regulations establishing National Ambient Air Quality Standards for PM10 (particulate matter with an aerodynamic diameter less than 10 microns).  Over time, EPA developed techniques for measurement, control, monitoring and modeling of PM10. In 1997, EPA defined a new pollutant, PM2.5 (particulate matter with an aerodynamic diameter les than 2.5 microns) and a new NAAQS for it. EPA recognized, however, that agencies and the regulated community lacked the “necessary tools to calculate emissions of PM2.5 and related precursors and project ambient air quality impacts.” and authorized use of PM10 as a surrogate for PM2.5.  This policy was affirmed in rulemakings in 2005 and 2008 (the latter established a transitional period through 2011 to direct regulation of PM2.5).
 
 
            A little over a year (and a change in Administrations) later, in the context of acting on a petition for an objection to a Title V permit for an individual power plant, EPA abruptly did an about face, declaring that “permit applicants and permitting authorities [must] determine whether PM10 is a reasonable surrogate for PM2.5 under the facts and circumstances of the specific permit at issue, and not proceed on a general presumption that PM10 is always a reasonable surrogate for PM2.5.” Remarkably, the Trimble Order provides no explanation whatsoever as to how the new “requirement” to conduct a case-by-case assessment overrides the transition rule for SIP-approved states established through notice and comment procedures in the PM2.5 NSR implementation rule. Moreover, the order fails to explain why the court opinions “that are properly read as limiting the use of PM10 as a surrogate” – all of which predated the 2008 PM2.5 NSR implementation rule somehow have greater force and effect now than they did at the time the transition policy was established in the implementation rule.
 
 
            EPA has vigorously insisted on the reasonableness analysis prescribed in the Trimble Order, regulated entities have been forced to attempt to comply with it and state agencies have enforced it. Clearly, EPA’s statements have the requisite practical binding effect to bring them under the purview of the APA. More importantly, this previously unknown requirement for a reasonableness analysis is not a trivial one, especially for projects that are in the middle of permitting, engineering design, financing or even construction. Attention must be diverted from making the project a reality to figuring out how to comply with a new requirement. Like so many recent pronouncements, in Trimble County, EPA made a policy pronouncement but provided no tools to implement it. That is a recipe for regulatory uncertainty leading to structural unemployment.
 
 
Prior Converted Croplands
 
            A more recent Corps decision regarding the treatment of prior converted croplands puts a finer point on the APA implications of rulemaking by permit, order or guidance. Under the Clean Water Act, a permit is required to discharge fill material to waters of the United States, including wetlands. In 1993, the Army Corps of Engineers, which administers the permit program issued a rule excluding prior converted croplands, i.e. lands that were drained to grow commodity crops prior to 1985, are not wetlands because they no longer exhibit the characteristics or serve the function of wetlands.   The only way for such lands to revert to Corps jurisdiction is for them to be abandoned as croplands and revert to their wetlands state. In July of 2009, the Jacksonville District Office of the Corps issued an “Issue Paper” in which it determined for the first time that prior converted cropland that is converted to non-agricultural uses are subject to Corps jurisdiction, regardless of there characteristics or function as wetlands. The Issue Paper, which was written in response to jurisdictional determinations for five limestone quarries, was sent to the Corps Headquarters for review and it was affirmed as agency policy. It was not, however, subject to notice and comment rulemaking.
 
 
            In a challenge brought by affected landowners, the United States District Court for the Southern District of Florida found that the Issue Paper was a rulemaking adopted without the required notice and comment under the APA and therefore was not valid.   The court explained that the rulemaking process was not a mere technicality because that procedure provided the agency with diverse public comment, accorded fairness to interested parties and allowed the development of record for judicial review. The Corps argued that the Issue Paper was a mere policy statement, but the court disagreed stating that it resulted in a shift in rules and a new binding norm regarding what the Corps considers wetlands from which district offices were not free to deviate in individual cases.
 
 
            Both Trimble County and New Hope Power Company reflect exactly the type of agency activity – the reversal of years of agency practice by a permit, order or guidance document and without a valid rulemaking – that creates regulatory uncertainty and structural unemployment. No matter how much private or stimulus money is thrown at it, no project can truly be “shovel ready” (i.e., fully designed, planned and financed) when there is no way to determine whether it complies with the law or whether the rules that apply to it will change while it is under construction. 

Preserving the Tallgrass Prairie in the Face of Stringent Air Quality Standards: The Flint Hills Smoke Management Plan

Posted on January 17, 2011 by Charles Efflandt

It is an environmental truism that increasingly stringent air quality standards can cause collateral damage – typically economic in nature. It is less common for such standards to directly impact preservation of a significant North American ecosystem.

Comprising a vast area in eastern Kansas and northeast Oklahoma, the Flint Hills ecosystem remains today the last unfragmented expanse of tallgrass prairie on the continent. Roughly two-thirds of all tallgrass prairie in North America is contained in the Flint Hills. The Flint Hills provide a unique ecosystem for numerous mammals, birds, reptiles and cattle (the surrogate for the bison that once roamed this area and that served as a keystone species in maintaining biodiversity). The U.S. Fish & Wildlife Service and The Nature Conservancy have both identified the Flint Hills as a priority conservation action site.

Fire is a critical ecological driver in the tallgrass prairie. Lightning is nature’s tool for this process of ecological renewal. The burning of large sections of the Flint Hills was practiced for centuries by Native Americans. In more modern times, controlled burning has been utilized by conservation agencies and organizations, as well as by ranchers, as an ecological and agricultural management tool. Tallgrass prairie preservation requires frequent burning to prevent the encroachment of woody species and maintain the integrity of the plant communities and wildlife habitat. From an agricultural perspective, the burning and renewal of the tallgrass has been shown to significantly increase the productivity of the rangeland for cattle ranching purposes.
 

Such frequent and widespread burning, however, creates health concerns. Air modeling has shown transport of PM and ozone precursors as far east as Tennessee during the burning season. Air pollutants from Flint Hills burning have also adversely impacted or threatened the NAAQS attainment status of areas in Kansas and Missouri. With more stringent ozone regulations imminent, this conflict between ecological preservation and compliance with air quality standards will be exacerbated.

A recent ACOEL posting suggested, in the climate change context, that the severe economic consequences of the traditional legislative/regulatory process can and should be mitigated through creative voluntary community effort. With the ecologically and agriculturally beneficial practice of tallgrass burning on a collision course with NAAQS attainment, such an approach was recently embraced by the U.S. EPA, Kansas Department of Health and Environment, conservation and agricultural organizations and academia. The December 2010 approval of the Flint Hills Smoke Management Plan was the result of over a year of collaborative effort by these stakeholders. The key elements of the Plan include:

  • A new website with a predictive plume modeling tool for public and private decision-making.
  • Development of fire management practices to mitigate adverse health consequences and NAAQS violations associated with controlled burning.
  • A comprehensive data collection effort to better characterize prairie burning and its consequences.
  • Proposed limited legal restrictions on open burning during critical time periods.
  • Extensive outreach and education efforts, including prescribed fire training programs, public-private information sharing, and media exposure.
  • A pilot project in the spring of 2011 in two Kansas counties to implement the predictive computer modeling and fire management practices.

The Plan has been attacked by certain environmental organizations as a “smoke screen” whose objective is to facilitate EPA exemption of burning from enforcement in order to maximize beef production. These critics discount the ecological motivation for the Plan and allege that it is unlikely to adequately protect public health. I would suggest that the Plan should not be viewed as the final answer. Rather, it should be considered a working document that will evolve as the results of modeling and data collection and level of voluntary implementation are evaluated. Time will tell the extent to which the Plan can be cited as further evidence of the power of voluntary, collaborative

"No More Business as Usual": A Preview of Climate Change and the California Environmental Quality Act in 2011

Posted on January 5, 2011 by Patrick Dennis

As goes California, so goes the rest of the nation? That could be the case with respect to climate change and the regulation of greenhouse gas (GHG) emissions. Climate change and the implications of California’s Global Warming Solutions Act of 2006 (also known as AB 32) continue to remain a topic of great debate and speculation nationwide, as well as in California. AB 32 recently survived an initiative challenge during California’s November 2010 election cycle, and deadlines established in AB 32 to meet greenhouse gas reduction goals continue to loom. Recently, Governor Arnold Schwarzenegger, who just left office a few days ago, gave remarks at a California Air Resources Board meeting and acknowledged the “great, great benefits” from the creation of green jobs and venture capital being provided to GHG reduction projects. However, the Governor’s excitement for the benefits of AB 32 and climate change initiatives were tempered by California’s economic reality. According to the Governor:

 


We have to be sensitive because it is an economic downturn and this Air Resources Board knows that they have to be sensitive. But we have to reach our goal by 2020, our reductions of 25 percent and we’ve got to go and have our 33 percent of renewables by 2020. There are no two ways about that.

 


So what does this mean as we look forward to 2011 with a new Governor and lingering fiscal issues?
 

One area of law where climate change is bound to remain an active topic of discussion, and likely litigation and regulatory development, is with respect to the California Environmental Quality Act (CEQA). At the time AB 32 was adopted, there was uncertainty about the type of greenhouse gas emissions analysis that would be required under CEQA, and opponents of development projects filed several lawsuits to challenge projects on that basis. The early California State superior court decisions after passage of AB 32 ran the gamut from not requiring climate change analysis or a discussion of AB 32 , to finding an environmental impact report inadequate for failing to make a meaningful attempt to determine the project’s effect on global warming simply because it was “speculative”. In 2007, California adopted SB 97, which directed the Governor’s Office of Planning and Research (OPR) to develop recommended amendments to the State CEQA Guidelines for addressing greenhouse gas emissions , with the goal of creating a coordinated policy – instead of a “piecemeal approach dictated by litigation .” The amendments became effective in March 2010.

 


Despite the adoption of the CEQA guidelines amendments, how state and local agencies should analyze and, when necessary, mitigate greenhouse gas emissions still remain somewhat of a mystery, because the amended guidelines and most local governing bodies have fallen short of providing a clear threshold as to what constitutes a significant impact under CEQA, and what should be done to mitigate the impact. However, what we can anticipate for 2011 is that project applicants must “do something” – business as usual (i.e. developing projects without evaluating and, as necessary, reducing GHG emissions) will likely not suffice. The amended guidelines have been adopted, models for quantifying GHG emissions are available, and state and local agencies such as the Attorney General’s Office ) and various air quality management districts have provided recommended mitigation measures and performance-based and numeric thresholds related to climate change. The California Court of Appeal also weighed in on the “do something” mantra in April 2010 in concluding that an environmental impact report was inadequate because it improperly deferred an evaluation of GHG mitigation measures. It held that, “[d]ifficulties caused by evolving technologies and scientific protocols do not justify a lead agency’s failure to meet its responsibilities under CEQA by not even attempting to formulate a legally adequate mitigation plan.”

 


All in all, with AB 32 left intact, the adoption of the new CEQA Guidelines, and the CARB regulatory package for implementation of AB 32 likely to be put in place, 2011 promises to be an active year in California’s legal and regulatory environment – one that the nation will continue to closely monitor as California takes the lead.

Tailoring Rule Gets Further Alteration (or Nip and Tuck EPA Style)

Posted on December 30, 2010 by Karen Aldridge Crawford

On December 30, 2010, just days before the first Greenhouse Gas (GHG) regulations are to become effective, EPA issued another final rule to clarify and narrow the applicability of those regulations. 75 FR 82254 (12/30/10).

 

After reviewing the “60-day letters” received by EPA from most of the states, the agency realized its initial strategy for regulating GHG emissions was flawed in those states that had approved Title V permitting programs Those state programs were based on Clean Air Act and federal regulatory provisions in 40 CFR Parts 52 and/or 70 that established the threshold for major source determinations as 100 tons per year (tpy) for certain air pollutants subject to regulation, rather than the 100,000 tpy threshold on a carbon dioxide equivalent (CO2e) which EPA determined should apply to GHG emissions (the Tailoring Rule).

 

While some state laws and regulations were worded broadly enough to be consistent with the initial Tailoring Rule, many states would be required to modify their program to only regulate GHG emissions at the higher Tailoring Rule threshold upon the January 2. 2011 effective date of the new rule. Otherwise, those states’ programs would require regulation of GHG emissions at the original threshold of 100 tpy, which would inundate the states with many more permit applications than EPA’s regulations actually intended.

 

The provisions in both Part 52 and Part 70 applicable to the affected state programs are revised to read, “… EPA approves such provisions only to the extent they require permits for such sources where the source emits or has the potential to emit at least 100,000 tpy CO2e, as well as 100 tpy on a mass basis, as of July 1, 2011.” EPA has stated this language means that GHGs are regulated at 100,000 tpy and all other pollutants subject to regulation are regulated at the 100 tpy mass-based threshold.

 

It will be interesting to watch whether the courts’ interpret this additional “clarifying” language to be clear and legal.

Happy New Year? With the Advent of Greenhouse Gas Regulation Only Days Away, Many in Industry Might Prefer, Instead, to Turn Back the Clock

Posted on December 28, 2010 by John Crawford

By James R. Farrell

Butler, Snow, O’Mara, Stevens & Cannada, PLLC (www.butlersnow.com)

 

 

Regulation of greenhouse gas (GHG) emissions has become a reality. Although the Supreme Court’s 2007 ruling in Massachusetts v. EPA deserves much of the credit for EPA’s aggressive response to global warming, congressional inaction on comprehensive climate change legislation ultimately set in motion the agency-driven agenda that has led our country to an historic yet extremely controversial crossroads in environmental regulation. The Supreme Court’s conclusion that GHGs constitute air pollutants as defined by the Clean Air Act required EPA to determine whether GHG emissions from motor vehicles cause or contribute to climate change that is reasonably anticipated to endanger the public health or welfare; however, the Court’s requirement for regulatory action did not preclude the possibility of a legislative response.

 

 

Despite the dim prospects for comprehensive climate change legislation today in the wake of the turbulent 2010 mid-year elections, the political landscape appeared far more favorable little more than eighteen months ago. On June 26, 2009, the House had narrowly passed the American Clean Energy and Security Act of 2009 (the “Waxman-Markey Bill”) by a vote of 219-212. The Waxman-Markey Bill featured a cap and trade component to regulate GHG emissions, and the bill would have required a seventeen percent reduction in GHG emissions from 2005 levels by 2020 and an eighty percent reduction by 2050. 

 

 

In the Senate, Senators John Kerry (D-MA), Joseph Lieberman (I-CT), and Lindsay Graham (R-SC) had been hard at work on a comparable climate change bill dubbed the American Power Act. In early 2010, the bill appeared to have bipartisan support due in large part to its provision for expanded offshore drilling, an early and significant concession by the bill’s sponsors. But when the Deepwater Horizon exploded on April 20th, everything changed. As public outrage at the offshore drilling industry grew daily in response to the unprecedented magnitude of the oil spill, it triggered a proportional decrease in political will for comprehensive climate change legislation. By the time the American Power Act was introduced on May 12th, Senator Graham had already withdrawn his support insisting that the ongoing and more immediate threat posed by the Gulf oil spill had “made it extremely difficult for transformational legislation in the area of energy and climate to garner bipartisan support . . . .”

 

 

In the end, the legislative response to climate change that had once appeared likely – if not imminent – never materialized. In contrast, EPA has wasted no time since Massachusetts v. EPA engaging in regulation-making intended to address climate change. The culmination and cornerstone of this fervent EPA activity is EPA’s Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule (the “Tailoring Rule”), which will usher in a new and hotly contested era of GHG regulation on January 2, 2011. The Tailoring Rule’s phased-in approach to regulation means that the regulatory net it casts will gradually widen with time, initially targeting those stationary sources known to be the largest emitters of GHG emissions but eventually encompassing some smaller sources as well. 

 

 

Whether or not you’ll be ringing in the new year this year likely depends on your political persuasion. For many environmental groups who have lobbied tirelessly for greenhouse gas regulation, 2011 is a long-awaited (and soon to be much-celebrated) new year. For many in industry, however, 2011 is likely to be a year of nostalgia filled with no less than 365 opportunities to remember fondly the less regulated days of yesteryear. Happy New Year!

 

 

Butler, Snow, O’Mara, Stevens & Cannada, PLLC (www.butlersnow.com)

·        John A. Crawford

·        Michael D. Caples

·        James I. Palmer, Jr.

Supreme Court grants cert in Connecticut v. AEP

Posted on December 7, 2010 by Michael Gerrard

The U.S. Supreme Court announced yesterday morning that it has granted certiorari in Connecticut v. American Electric Power, the case seeking an order compelling several electric utility companies to reduce their greenhouse gas emissions, based on common law nuisance theories. Justice Sotomayor recused herself; she had been on the Second Circuit panel that heard the argument below, though she had been promoted to the Supreme Court before the Second Circuit issued its ruling allowing the case to proceed.

New Mexico Promulgates a Cap and Trade Rule

Posted on November 23, 2010 by Larry Ausherman

Earlier this month, the State of New Mexico adopted a rule designed to cap greenhouse gas (“GHG”) emissions in New Mexico and implement the State’s participation in a cap and trade market based on the design guidelines of the Western Climate Initiative (“WCI”). But it is too soon to tell how the New Mexico GHG rule will shake out. The future of cap and trade in New Mexico depends on many developments that range from the election of a new governor who will take office in January 2011, the fate of California’s cap and trade program, and the potential that the New Mexico GHG rulemaking will be appealed. An additional New Mexico only greenhouse gas cap and reduction proposal will also be considered by the New Mexico Environmental Improvement Board (“EIB”) in early December. 

 

 

            On November 2, 2010, after lengthy and contentious debate, EIB narrowly adopted the GHG rule that was proposed by the New Mexico Environment Department (“NMED”) last spring. The rule provides for a cap and trade program for certain GHG emissions in New Mexico that could start as early as 2012. The program would not be initiated without participation of other states with GHG emissions sufficient to provide a base of at least 100 million metric tons of CO2 equivalent emissions.  This requirement is designed to avoid the State’s implementing a trading program alone. For all practical purposes, because the trigger for implementation is a base of at least 100 million tons, the New Mexico cap and trade program will not be able to move forward without implementation of the California program. Of the 7 initial participating WCI states, only New Mexico and California are moving forward at this time to implement a cap and trade program.        

 

The New Mexico GHG rule would apply to about 63 large industrial facilities that emit GHGs in the State. The affected facilities include primarily power plants and large oil and gas operations. After the rule becomes effective, the affected facilities would be required to reduce emissions by 2% annually until 2020 or be required to acquire offset credits for emissions from other jurisdictions or external trading programs. The State would initially provide allocations for baseline emissions for those currently existing regulated facilities without charge.  

 

 

            Also in November, the EIB adopted mandatory reporting and verification rules. The rules require sources emitting more than 10,000 metric tons of CO2e emissions to report emissions. Those sources with greater than 25,000 metric tons of CO2 equivalent emissions are required to obtain third-party verification of emissions.   This rule is scheduled to go into effect on January 1, 2011, regardless of whether the cap and trade rule goes into effect. NMED estimates that 130 to 150 sources will be affected by the reporting rule. 

 

 

            Challenges to New Mexico’s GHG rule are likely. The margin of the EIB vote on the rule was narrow, four to three in favor. Moreover, on the day EIB adopted the rule, the New Mexico voters elected a new governor, Susanna Martinez. The Republican governor-elect’s campaign positions included opposition to WCI and the GHC initiatives of the current Democratic governor, Bill Richardson. It seems likely that the new GHC rule will not meet with favor in a Martinez administration. The change of administration is particularly important because to date, Governor Richardson’s support for New Mexico GHG initiatives has been critical to their adoption. New Mexico’s participation in WCI was initiated by Executive Order, and NMED’s efforts to implement the WCI cap and trade program in the state legislature have been unsuccessful. 

 

 

            In addition to the recently adopted GHC cap and trade and reporting and verification rules that were proposed by NMED, an additional petition by The New Energy Economy that would put a cap on GHG emissions in New Mexico is scheduled for decision by the EIB in early December. The New Energy Economy petition asks EIB to mandate that large facilities emitting greenhouse gases must reduce their emissions by 3% every year from 2010 levels, regardless of the development of a cap and trade market in the region.   If adopted, the program would sunset in 2020, and also be suspended in any year that a source begins reducing GHG emissions pursuant to a multi-jurisdictional or national GHG reduction program.

 

 

            The future will tell us which of the two votes taken on November 2 will prove most important. Some key opponents to the New Mexico GHC rule have expressed support for a federal cap and trade effort, but other very significant concerns remain, particularly regarding GHG proposals that are merely state or regional. In New Mexico, as in the rest of the country, the GHG trading market is far from open.

California Takes Dead Aim at Global Warming

Posted on November 22, 2010 by Jose R. Allen

One of the most striking campaign ads to hit the air waves during the run-up to the recent mid-term elections was the "Dead Aim" ad aired by Joe Manchin, the Senator-elect from West Virginia. The ad featured Manchin walking through an open field with a rifle cradled in his arms. He stops, deliberately loads a single cartridge into the firing chamber of the rifle, takes aim at a distant target and fires. The camera then zooms in on the target of Manchin's single, clean shot: a fictitious Senate bill titled, "Cap and Trade." The ad ends with Manchin staring directly into the camera and promising that, "I will take dead aim at the Cap and Trade bill because it is bad for West Virginia." 

 

 

In California voters were far more hospitable to climate change regulation in general and a cap-and-trade program in particular. Just days before California voters went to the polls to defeat a ballot initiative aimed at delaying implementation of California's landmark global warming law (AB 32), the California Air Resources Board (ARB) released for public comment proposed regulations to implement a state-wide cap-and-trade program. The cap-and-trade program would place an overall cap on the amount of GHG that can be emitted by all sources covered by the program. The ARB would then issue allowances equal to the cap to regulated sources. The cap would be gradually reduced between 2013 and 2020 to achieve the GHG gas emissions reduction target established by AB 32. Sources subject to the cap-and-trade program would have to reduce their GHG emissions to achieve their allocated emissions limits or use offset credits to satisfy a portion of their compliance obligations. 

 

 

What was used for target practice in a Senate campaign in West Virginia is used in California as the key part of the strategy to reduce GHG emissions. Only time will tell whether it will be open season on cap-and-trade programs or whether such programs are the wave of the future.

RIGHTS OF CITIZENS MAY DEPEND ON TIME ZONE

Posted on October 4, 2010 by Brian Rosenthal

Under the Clean Air Act (CAA), how long must an operator worry whether a citizen suit will be filed claiming its facility construction modification triggered Prevention of Significant Deterioration (PSD) permit requirements? The answer may depend on when and where the modification occurred. If a company violates its duty to obtain a preconstruction permit under the CAA’s PSD permitting requirement, it may be subject to a later citizen suit for failing to operate with a proper permit or failing to incorporate best available control technology (BACT). The United States Court of Appeals for the Eighth Circuit joins the Eleventh Circuit by concluding the CAA’s PSD provisions are reviewed when construction or modification is initiated and are not ongoing, operating requirements. While there is no statute of limitations for CAA citizen suit actions, the general federal five year limit applies from claim accrual. Thus, in the reviewed case because the last challenged modification was constructed more than five years before the filed citizen suit, the court found the citizen suit untimely. PSD permits are for construction and do not set operating requirements. BACT and PSD go “hand in hand”, so because PSD permitting could not be timely claimed, neither could the claim as to control technology be sustained. Operators in the Sixth Circuit however may not be so safe—that circuit has held State Implementation Plan (SIP) regulations contain operating requirements, but hold the claim in Kentucky, Michigan and Ohio--the Sixth Circuit contrary case may be limited to Tennessee or any other state with an SIP allowing for permit issuance post-construction. Sierra Club v. Otter Tail Power Co., No. 09-2862 (8th Cir. August 11, 2010).

EPA'S CLIMATE EFFORTS TAKE CENTER STAGE

Posted on August 6, 2010 by Deborah jennings

With Congress failing to act on climate change, attention turns to EPA’s efforts to regulate greenhouse gases (GHGs) pursuant to its authority under the Clean Air Act (CAA). On December 7, 2009, the EPA issued its Endangerment Finding for GHGs, concluding under the CAA’s mobile source section that GHGs endanger public health and welfare, and that GHG emissions from motor vehicles contribute to climate change. See 74 Fed. Reg. 66,496 (Dec. 15, 2009). The determination was a direct response to the Supreme Court’s decision in Massachusetts v. EPA, 549 U.S. 497 (2007), holding that because GHGs are considered “air pollutants” under § 202(a) of the CAA, EPA has authority to regulate them if it determines that they endanger public health or welfare.

Although the Endangerment Finding does not itself impose any requirements on regulated entities, it sets in motion a chain of events culminating in the regulation of GHGs emissions from stationary sources under the CAA. First, it is the predicate for EPA’s rule, signed jointly with the Department of Transportation (DOT) on April 1, 2010, to create GHG emission standards and Corporate Average Fuel Economy (CAFE) standards for light duty vehicles (e.g., cars, light-trucks). See 74 Fed. Reg. 49,454 (proposed on Sept. 15, 2009); 75 Fed. Reg. 25324 (finalized on May 7, 2010). This will dramatically improve fuel economy, requiring automobile companies to meet a combined average fleet of 250 grams of CO2 per mile, or 35.5 miles per gallon by 2016. Additionally, on May 21, 2010, President Obama directed the EPA and DOT to create GHG and CAFE standards for medium- and heavy-duty trucks for Model Years 2014-2018, which currently average only 6.1 miles per gallon. He also directed the agencies to extend the national program for cars and light-duty trucks to Model Years 2017-2025.
 

The implications of the initial mobile source rule cannot be overstated. According to EPA, as soon as the rule “takes effect” on January 2, 2011, GHGs will become “subject to regulation” under the CAA and therefore must be regulated from stationary sources as well. Stationary sources producing relatively low threshold quantities of GHGs would become subject to the Title V and Prevention of Significant Deterioration (PSD) permitting programs, and potentially stringent pollution controls associated with the latter. In a related rulemaking, EPA announced that the rule would “take effect” no earlier than January 2, 2011, so that PSD for GHGs would not be triggered until that date. 75 Fed. Reg. 17004 (Apr. 2, 2010).

In anticipation of the automobile GHG standard triggering PSD for stationary sources, EPA recently finalized a “Tailoring Rule” to raise the statutory threshold for regulation under the PSD and Title V programs to insulate smaller GHG sources from being subject to such requirements. See 74 Fed. Reg. 55,292 (Oct. 27, 2009) (proposed rule); 75 Fed. Reg. 31,514 (June 3, 2010) (final rule). Under the CAA, sources emitting 100 or 250 tons per year (tpy) of a “regulated pollutant” are subject to the PSD program, while Title V permitting requirements apply to sources emitting 100 tpy or more. By increasing these thresholds to 75,000 or 100,000 tpy of GHGs under the final rulemaking, EPA hopes to protect smaller entities, such as small farms and businesses, from the prospect of onerous GHG controls. While significantly paring down the number of potentially regulated entities, the final Tailoring Rule would still cover 67% of GHG emissions from stationary sources in the United States.

Under the final rule, EPA will phase in the PSD and Title V permitting requirements in two initial stages. First, between January 2, 2011 and June 30, 2011, only sources currently subject to the PSD permitting program for pollutants other than GHGs would be subject to additional permitting requirements for their GHG emissions under PSD. Thus, where a new or modified source exceeds significant emissions thresholds for a traditional PSD pollutant and also increases GHGs by 75,000 tpy CO2e, it will be required to install Best Available Control Technology (BACT) to reduce GHG emissions. These controls are determined on a case-by-case basis during the PSD permitting process, taking into account, among other things, the cost and effectiveness of the control technology. While BACT has yet to be determined, it is very likely to carry significant teeth for new and modified facilities, and will undoubtedly be less flexible than purchasing carbon credits to offset a facility’s emissions. Similarly, only sources currently subject to the Title V operating permit program would be required to meet applicable GHG requirements. No sources would be subject to CAA permitting requirements based solely on their GHG emissions at this time.

Under Step 2 (July 1, 2011 to June 30, 2013), new construction projects emitting at least 100,000 tpy CO2e of GHGs and modifications of existing facilities increasing GHG emissions by 75,000 tpy CO2e will be subject to PSD permitting requirements, regardless of whether they significantly increase emissions of any other pollutant. Title V operating permit requirements will apply to sources emitting at least 100,000 tpy of GHGs. The rules will require certain sources, such as solid waste landfills and industrial manufacturers, to acquire permits for the first time.

Finally, EPA plans on exploring a third step, which may expand permitting requirements for sources emitting at least 50,000 tpy of GHGs, but will not require permitting for facilities emitting below that threshold. Sources exceeding the 50,000 tpy threshold would not be subject to permitting requirements until at least April 2016.

As part of this flurry of new climate change regulatory activity, EPA also approved a Mandatory Greenhouse Gas Reporting Rule, requiring fossil fuel or industrial GHG suppliers, vehicle and engine manufacturers, and facilities emitting greater than 25,000 tpy GHGs to submit annual reports to EPA reporting their emissions. 74 Fed. Reg. 56,260 (Oct. 30, 2009). The information gathered will be used to create a national GHG registry covering 85-90% of national emissions, while also informing future policy decisions. Facilities must commence monitoring on January 1, 2010 and submit to EPA their first annual reports containing 2010 data by March 31, 2011.

Although most of EPA’s measures are sure to be challenged in court, they represent an extremely critical foundation for greenhouse gas controls in the U.S. EPA action under the Obama Administration has all but ensured that U.S. businesses will operate in a carbon-constrained environment.

Climate Legislation Is Dead (For Now): Long Live Conventional Pollutants

Posted on July 28, 2010 by Seth Jaffe

Climate change legislation is dead for now. I won’t pretend it’s not depressing, even though I avoid the political channels and ignore the rhetoric. For those of us who haven’t refudiated climate change science, it’s a victory for the pessimists and evidence that Congress has a hard time addressing long-range problems, even if consequential.

With respect to regulation of GHG, it’s the worst of both worlds and no one should be happy (which is why I held out hope until the end that cooler heads would prevail). We’re still going to have regulation of GHG, the mechanism being EPA’s recently promulgated Tailoring Rule for GHG. One word. Ugh. Does this really make climate skeptics happy? Do they really think that they will somehow succeed in rolling back the Tailoring Rule? I don’t think so. On the other hand, we don’t have an economy-wide cap-and-trade or carbon tax regime. Are environmentalists happy? I still don’t think so. 

I’m left feeling a little like Rodney King. Certainly, the issue isn’t going to go away before the next Congress is sworn in.

As I have noted before, however, problems with climate change legislation don’t mean that Congress can’t enact legislation further regulating traditional pollutants. The three-pollutant bill now before the Senate already has a Republic co-sponsor, Lamar Alexander. Now, according to a report in E&E Daily, even Senator Inhofe is stating that he’s interested in working with Democrats to move three-pollutant legislation. Given the failure to move GHG legislation, hell is likely to get hotter before freezing over, but if Inhofe can really be brought on board, there’s no reason why legislation couldn’t pass.

Three-pollutant legislation shares one significant feature with the GHG issue. Like GHG regulation, efficient regulation is hampered by limitations in existing law, as we saw with the D.C. Circuit’s rejection of the trading regime in the CAIR regulations, and EPA’s much more limited trading program in the Transport Rule. Senator Voinovich, another Republican that three-pollutant legislation supporters would like to have with them, noted as much, saying that the transport rule would be a "stringent and inflexible regime." New legislation could provide for a more robust trading regime. We’ll see if that’s enough to bring Republicans on board.

I sure hope so. Right now, all we’ve got is a GHG regulatory program that won’t do much for climate change, but will cause my clients endless headaches, and a Transport Rule that’s probably the best EPA can do on traditional interstate pollution, but not nearly as cost-effective as it might be with new legislative authority. I remain an optimist, but sometimes it’s difficult.

COUNTING DUST

Posted on July 6, 2010 by Roger Ferland

Concern is growing in western states about EPA's recent refusal to adequately  consider elevated PM-10 levels resulting from natural events as a factor in determining nonattainment.In 2005, Congress amended Clean Air Act Section 319 to require EPA to adopt rules for states to petition to exclude certain measured or modeled ambient air quality data from the determination whether a state was attaining National Ambient Air Quality Standards (“NAAQS”), because the data was affected by “exceptional events.” In general, exceptional events are those caused by natural, rather than anthropogenic sources. On March 22, 2007, EPA adopted a rule establishing the procedures and criteria to “exclude, discount, weigh, or make adjustments” to data based on the exceptional event finding. 72 Fed. Reg. 13561, 13562. 

 

From its adoption, the rule was criticized either for going too far to find exceptional events or not far enough. Particularly unhappy with the rule was the Western States Air Resources Council or WESTAR, an association of air quality managers from the western states. Criticisms include the charge that the rule did not contain clear criteria for making an exceptional event demonstration and generally ignored the real world natural conditions in the western deserts. In addition, WESTAR and others maintained that EPA acted much too slowly and inconsistently on state petitions for exceptional event determinations. In response, EPA has promised to issue guidance that would address these concerns.

 

On May 25, 2010, EPA rejected a petition for exceptional event status covering four high wind-related PM-10 NAAQS exceedances at a single monitor in Phoenix, Arizona. As a result, EPA will be compelled to disapprove the CAA Section 189(d) PM-10 nonattainment area plan for the Phoenix area. State officials expressed shock at the rejection because they believed that they had worked closely with EPA technical staff to develop a data package that would satisfy the rule criteria. They complained that their data had either been ignored or summarily dismissed. 

 

Officials from other western states attacked the EPA decision immediately and demanded new rules rather than the less legally-binding guidance promised by EPA. Although the controversy over EPA’s exceptional events rule and its implementation has been generally confined to PM-10 issues in the arid west, the adoption of a significantly more stringent 8-hour ozone NAAQS in August, and the huge increase in the size and number of nonattainment areas that will result from the new standard is likely to make the dysfunctional rule a national concern.

Climate Change Work Group Phase Two - EPA Searches for Energy Efficiency and Innovation Using an Unlikely Tool

Posted on May 5, 2010 by Robert Wyman

EPA is stuck between a rock and a hard place in using the Clean Air Act to regulate greenhouse gas emissions. Having made an endangerment finding and issued final motor vehicle regulations, EPA soon (commencing January 2, 2011) must implement its Prevention of Significant Deterioration (PSD) preconstruction review program for stationary sources as one or more greenhouse gases become “regulated pollutants” under the statute. But the PSD program is hardly an ideal tool for the job, and may indeed be one of the worst.

 

Recognizing the difficulty of its task, in late 2009 EPA commissioned a Climate Change Work Group to advise it regarding how best to implement the PSD permit program and how to define Best Available Control Technology (BACT) for sources of greenhouse gas emissions. This January the Work Group issued a Phase One report that contained some important but relatively basic recommendations.
 

Now the Agency has launched Phase Two of the Work Group effort. In an April 9 letter to Work Group Co-Chairs, EPA Assistant Administrator Gina McCarthy asked the Work Group to focus on two of the most important strategies for reducing greenhouse gas emissions – energy efficiency and innovation.

 

Most seasoned observers recognize that the PSD process currently discourages energy efficiency investments. That is because PSD rules assume that more efficient units will be used more and that such projects could cause net emission increases that trigger PSD review and require the installation of BACT. The PSD process thus significantly delays and adds cost to many energy efficiency projects. As a result, many efficiency upgrades are foregone for fear that they will trigger the PSD process. This is tragic because efficiency upgrades offer the greatest potential for near-term and cost-effective greenhouse gas reductions. See, e.g., Unlocking Energy Efficiency in the U.S. Economy (July 2009).

 

The Work Group’s task of encouragingenergy efficiency by using the instrument most responsible for chilling such investments is the policy equivalent of placing a square peg into a round hole. If the Work Group recommends expediting or exempting from PSD review appropriate efficiency projects, then there is some hope that EPA can use the program to capture as-yet-untapped efficiency and innovation opportunities that currently exist. If, on the other hand, the Work Group, and ultimately EPA, remain unwilling to clear the regulatory costs and hurdles that PSD customarily imposes, then the opportunity will be lost.

 

EPA has asked the Work Group to provide its recommendations by no later than mid July. So stay tuned.