Climate Change Work Group Phase Two - EPA Searches for Energy Efficiency and Innovation Using an Unlikely Tool
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.
When Do EPA BACT Requirements "Redesign the Source"? Not When EPA Says They Don't
Shortly before the holidays, EPA Administrator Jackson issued an Order in response to a challenge to a combined Title V / PSD permit issued by the Kentucky Division for Air Quality to an Integrated Gasification Combined Cycle, or IGCC, plant. The Order upheld the challenge, in part, on the ground that neither the permittee nor KDAQ had adequately justified why the BACT analysis for the facility did not include consideration of full-time use of natural gas notwithstanding that the plant is an IGCC facility.
The Order may not be shocking in today’s environment – all meanings of that word intended – but the lengths to which the Order goes to avoid its own logical consequences shows just what a departure this decision is from established practice concerning BACT. BACT analyses have traditionally involved the proverbial “top-down” look at technologies that can be used to control emissions from a proposed facility. In other words, EPA takes the proposal as a given, and then asks what the best available control technology is for that facility.
In EPA’s own words – from its New Source Review Workshop Manual (long the Bible for BACT analysis):
Historically, EPA has not considered the BACT requirement as a means to redefine the design of the source when considering available control alternatives. For example, applicants proposing to construct a coal-fired electric generator, have not been required by EPA as part of a BACT analysis to consider building a natural gas-fired electric turbine although the turbine may be inherently less polluting per unit product (in this case electricity).
Apt example, don’t you think? (In case you are wondering, EPA’s decision does not discuss or refer to this text from the NSR Manual.)
What was the basis for EPA’s decision here? Largely, it is that the IGCC facility will be designed to burn natural gas as well as syngas and the permittee specifically stated that it planned to combust natural gas during a 6-12 month startup period. On these facts, EPA concluded that the permittee and KDAQ had to do a better job explaining why full-time use of natural gas should be considered “to redefine the design of the source.”
As noted above, EPA went to great lengths to minimize the scope of the decision. It states that the Order:
should in no way be interpreted as EPA expressing a policy preference for construction of natural-gas fired facilities over IGCC facilities.
should not be interpreted to establish or imply an EPA position that PSD permitting authorities should conclude … that BACT for a proposed electricity generating unit is … natural gas.
does not conclude that it is not possible or permissible for the permit applicant … to develop a rationale which shows that firing exclusively with natural gas would “redefine the source.”
EPA does not intend to discourage applicants that propose to construct an IGCC facility from seeking to hedge the risk of investing in … IGCC technology by proposing … utilizing natural gas for some period….
Methinks EPA doth protest too much. If I may say so, this is a freakin’ IGCC facility. Isn’t it obvious that one doesn’t plan or build an IGCC facility if one plans to burn natural gas? Don’t you think that EPA could have taken administrative notice of what IGCC technology is?
All of EPA’s protestations about the Order’s limits may be designed to mollify IGCC supporters, but what does its rationale mean for all of the existing facilities – coal and oil – that are already capable of firing on natural gas? Next time they are subject to NSR/PSD review, must they evaluate the possibility of switching completely to natural gas? As I’ve said here before, yikes!
GHG Regulation under the Existing CAA: Coming Soon to a [Large] Stationary Source Near You
On Thursday, EPA issued its long-awaited proposed rule describing how thresholds would be set for regulation of GHG sources under the existing Clean Air Act PSD authority. Having waded through the 416-page proposal, I’m torn between the appropriate Shakespeare quotes to describe it: “Much ado about nothing” or “Methinks thou dost protest too much.”
First, notwithstanding its length, the proposal is quite limited in scope. In essence, it has three parts:
Establishment of an applicability threshold for PSD and Title V purposes of 25,000 tons per year of CO2e.
Establishment of a PSD significance level of from 10,000 tpy CO2e and 25,000 CO2e.
Development over the next five years of means to streamline GHG regulation of sources greater than the current statutory levels of 100-250 tpy.
Basically, EPA’s position is that, once it begins to regulate GHGs as a pollutant by promulgating its mobile source rule – expected next spring – stationary source regulation under the PSD and Title V programs follow automatically. Thus, the issue for EPA at this point is not whether to regulate stationary sources, but how to do so without the entire program grinding to a halt.
Here’s where the protestation comes in. Most of the proposal is devoted to explaining EPA’s reliance of the doctrines of “absurd results” and “administrative necessity” to justify exclusion of sources that would seem to be categorically included by the explicit language of the statute. Members of the regulated community will understand the irony in EPA’s extensive discussion regarding how the purpose of the PSD program is to achieve environmental protection and economic development – and that this latter purpose would be jeopardized by regulation of sources at the 100/250 tpy threshold. I don’t think we will ever again see EPA devote this many pages to a description of its concern about economic growth.
I’m not going to predict here whether EPA will win any challenge to the higher thresholds. Certainly, the absurd results doctrine argument is the stronger of the two. It is noteworthy that the four leading environmental cases EPA cites in support of its administrative necessity argument, while acknowledging the existence of the doctrine, all went against EPA.
More relevant still is the question of who would in fact challenge this regulation and what would be the result even if the challenge succeeded. Following the debacle that resulted from vacation of the CAIR rule, what is the likelihood that a successful challenge would result in vacation of the rule in its entirety? Isn’t it more likely that the rule would stay in effect as to the large sources, with the remanding the case to EPA to promulgate rules governing smaller sources? In fact, that’s what EPA is already doing, which is probably EPA’s strongest practical argument in support of the rule.
Public comments will be due 60 days from Federal Register promulgation and there are some issues that the regulated community should consider. These include the significance threshold, and suggestions regarding how to streamline the program for smaller sources. EPA has proposed some interesting ideas, including presumptive BACT determinations and general permits.
Bottom line? Large sources better get ready to comply. Smaller sources, take a deep breath and count your blessings – for now.
EPA's Roll-Back of Bush-Era Rules Appears to Begin in Earnest
While a lot of attention has been paid to whether EPA would reverse the Bush EPA decision denying California’s petition to regulate greenhouse gas emissions from mobile sources, it is now clear even outside the climate change arena that life at EPA is going to be substantially different under the current administration. As if evidence were really needed for that proposition, EPA announced this week that it was putting on hold the NSR aggregation rule that EPA had promulgated on January 15, 2009.
The rule, which had been long sought by industry, would have provided that nominally separate projects would only have to be combined – aggregated for NSR/PSD purposes – if they are “substantially related.” It also would have created a rebuttable presumption that projects more than three years apart are not substantially related. Responding to a request from NRDC and the OMB memo asking agencies to look closely at rules promulgated before the transition but not yet effective, EPA concluded that the rule raises “substantial questions of law and policy.” Therefore, EPA postponed the effective date of the rule until May 18, 2009 and also announced that it was formally reconsidering the rule in response to the NRDC petition.
To those in industry, the aggregation rule was not a radical anti-environmental roll-back of environmental protection standards. Rather, it was more of a common-sense approach towards making the NSR program simpler and clearer. It is one of my pet peeves with the prior administration, however, that it gave regulatory reform a bad name.
In any case, I feel as though I should open a pool regarding what will be the next Bush-era rule to be tossed overboard. We surely won’t have to wait long for it to happen.
