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

Posted on June 28, 2012 by Michael R. Barr

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

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

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

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

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

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

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

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

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

Two Strikes Against Common Law Approaches to Climate Change: The Atmosphere Is Not A Public Trust

Posted on June 7, 2012 by Seth Jaffe

Last week, the District Court for the District of Columbia dismissed the so-called “public trust” climate change law suit. I will certainly give the plaintiffs in these cases credit for both originality and persistence. Legal merit and good public policy are another matter.

In any case, the plaintiffs sued EPA and various other federal agencies, seeking a finding that the agencies have failed adequately to protect a public trust asset, also known as the atmosphere, from climate change. The plaintiffs requested an injunction requiring that the agencies take actions necessary to reduce CO2 emissions by 6% yearly, beginning in 2013.

It did not take the Court long to dismiss plaintiffs’ arguments – and the case. The Court’s opinion has two critical holdings. First, since there can be no diversity action against the United States, the plaintiffs do not have access to federal courts unless there is a federal question. However, as the Court noted, the public trust doctrine is a creature of state law; there is no federal public trust doctrine.

Secondly, the Court concluded that, even if there ever had been a federal public trust doctrine, any such doctrine has been displaced by the federal Clean Air Act. Here, the Court relied squarely on the Supreme Court’s recent decision in American Electric Power v. Connecticut. The plaintiffs here tried to limit AEP to displacement of public nuisance claims, but the Court was having none of it, pointing out that AEP clearly stated that it was not federal public nuisance claims that were displaced by the CAA, but federal common law claims generally that were displaced.

Moreover, notwithstanding the plaintiffs’ creativity, the Court noted that:

"The question at issue in the Amer. Elec. Power Co. case is not appreciably different from the question presented here—whether a federal court may make determinations regarding to what extent carbon-dioxide emissions should be reduced, and thereafter order federal agencies to effectuate a policy of its own making. The Amer. Elec. Power. Co. opinion expressed concern that the plaintiffs in that case were seeking to have federal courts, in the first instance, determine what amount of carbon-dioxide emissions is unreasonable and what level of reduction is practical, feasible and economically viable."

And that really is the issue. Even if one believes that the government should be taking more aggressive action on climate change – and I certainly am among those who think it should be doing so – having the courts decide what level of reductions are necessary, and by when, is nuts. It’s just not a way to make public policy on the most complex environmental issue of our time.

Back to the drawing board for citizen plaintiffs. I can’t wait to see what they come up with next.

GHG Oral Argument: The Best Chance to Avoid the Tailoring Rule's Absurd Results

Posted on April 17, 2012 by John Milner

On February 28 and 29, 2012, the U.S. Court of Appeals for the District of Columbia Circuit heard oral argument in Coalition for Responsible Regulation v. EPA, No. 09-1322 et. al., consolidated challenges to the U.S. Environmental Protection Agency (EPA) ’s greenhouse gas (GHG) regulations.  These regulations are being challenged by a coalition of industry groups and some states (the Coalition).  The Coalition argues that the EPA does not have the authority to regulate GHGs from stationary sources under the Clean Air Act (CAA)’s Prevention of Significant Deterioration (PSD) permitting program without Congress amending the law.

The Coalition is asking the Court to vacate EPA’s rules regulating greenhouse gases, including the so-called Tailpipe and Tailoring Rules, on the grounds that  they are contrary to the Clean Air Act and deviate from the explicit emission permitting thresholds in the CAA.  As Peter Keisler, a lawyer for the National Association of Manufacturers (NAM) argued, “the agency crossed the line from stationary interpretation to statutory revision” and violated the law by raising the emissions thresholds far above those provided for by Congress in the CAA in order to avoid issuance of an unmanageable number of PSD permits in the short term . 

The PSD program applies to new major sources or major modifications at existing sources for pollutants where the area the source is located is in attainment or unclassifiable with the National Ambient Air Quality Standards (NAAQS).  As Keisler explained to the court, 83% of the GHG emissions from stationary sources would be regulated if EPA addressed greenhouse gas emissions solely in permits for the larger sources already subject to PSD requirements based on their emissions of criteria pollutants. 

As Keisler then explained, under EPA’s Tailoring Rule which requires permits based solely on greenhouse gas emissions, 86% of the GHG emissions from stationary sources would be regulated – “a very tiny increment of difference, but a huge difference” in the number of sources that would now be regulated.  And this increment of difference between 83% to 86% would translate into stationary sources never before regulated and now required to meet all PSD requirements, including implementation of costly best available control technology (BACT).

A decision by the Court is expected this summer. 

Having participated in oral argument preparation and having observed both days of the oral arguments, it is my impression that the NAM arguments against EPA's Tailoring Rule provide the Coalition with the best chance for victory.  NAM’s sound interpretation of the CAA and Congressional intent, coupled with the "avoidance of absurd results" doctrine, would blunt EPA's quantum leap through the CAA to create non-statutory GHG emission thresholds capturing only an additional 3% of stationary sources that were previously unregulated and would now have to bear crippling air pollution control costs for no real environmental benefit.  This is the real absurdity of EPA's Tailoring Rule that I hope the court's decision will remedy.

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

Posted on April 13, 2012 by Daniel Riesel

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

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

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

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

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

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

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

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

Posted on April 2, 2012 by Eva O'Brien

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

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

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

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

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

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

A Belated Thank You to Hunton & WIlliams from Sierra Club for PSD?

Posted on March 27, 2012 by Richard Lazarus

I attended on February 28th and 29th the oral arguments in the D.C. Circuit for what are euphemistically referred to as the “Greenhouse Gas Cases” now pending before that court. Two days of arguments, with 17 different attorneys presenting oral argument.  Perhaps not surprisingly, the judges weren’t the only ones who lost track of which issues were being addressed by different advocates.  The advocates themselves seemed to forget at times and repeatedly walked over each other’s lines.  It reminded me why the Supreme Court is so reluctant to allow for divided argument even in circumstances when the case for divided argument is otherwise quite compelling.

I will leave it to others to dwell on what the D.C. Circuit is likely to do, and instead will don my academic garb for an ironic aside on the history of the CAA’s PSD program. In watching the oral arguments, I was reminded about the extraordinary role that Hunton & Williams has played since the emergence of modern environmental law serving as environmental counsel for the powerplant industry including in this latest round.  One would be hard-pressed to identify any other law firm that has been such a constant and consistent voice on behalf of industry during the past four-plus decades of environmental litigation, especially on air pollution matters.

With the benefit of hindsight, however, those industrial clients might have fared a bit better had Hunton & Williams made one discrete exception to the consistency of its record.  The PSD program today finds its origins in the Supreme Court’s 1973 affirmance by an equally divided Court in Fri v. Sierra Club of a district court ruling that embraced the Sierra Club’s claim that the Clean Air Act, as drafted in 1970, required EPA to prevent “significant deterioration” of areas of the nation that were at the time cleaner than national ambient air quality standards.   The papers of Justice Harry Blackmun, which can be found in the Library of Congress, reveal, however, that Sierra Club achieved that affirmance after Hunton & Williams filed an amicus brief in the case in support of Edison Electric’s contention that the Clean Air Act did not require such a program. That filing apparently prompted Justice Lewis Powell – a former Hunton & Williams partner – to recuse himself from the case (after sitting at oral argument), resulting in the 4/4 split.  There is little doubt, based on his other pro-business votes in environmental pollution cases how Justice Powell would have voted had he not recused himself. The most certain upshot would have been an EPA victory and therefore the Agency never would have had to promulgate PSD regulations in compliance with the High Court’s ruling. And the absence of those initial PSD regulations would have dramatically shifted the political dynamic when Congress was amending the statute in 1977.

What I have always found especially odd about the firm’s amicus filing in the PSD case is that this was not the first time Justice Powell had recused himself in light of Hunton & William’s participation in a case before the Court, including on behalf of the powerplant industry as amicus curiae.  The Justice had done so consistently since joining the Court, which makes one wonder what the firm was thinking when it filed the amicus brief in Fri v. Sierra Club.  Interestingly, Justice Powell ended that recusal practice soon afterwards.  Perhaps the Justice received a very unhappy communication from either Henry Nickel or his close friend at the firm, George Freeman, regarding the necessity of a recusal in those circumstances?  Of course, I have no knowledge whether such a communication ever in fact occurred, but it does not take a lot of imagination to speculate that some folks at Hunton were likely exceedingly unhappy about the Justice’s recusal in light of the Court’s 4/4 affirmance. 

In all events, and regardless of the outcome of the recent greenhouse gas cases before the D.C. Circuit, the Sierra Club’s thank-you note to Hunton & Williams would seem long overdue. 

No Title V Permit "Shield" Protection in the Future in Wisconsin

Posted on March 26, 2012 by Michael McCauley

On December 12, 2011, the Wisconsin Department of Natural Resources (WDNR) issued a policy statement on including Permit "Shield" Statements in Title V air operating permits for sources located in Wisconsin.  A copy of the new policy can be found here.  WDNR's previous policy was to include a statement in Title V permits, indicating that the permittee's compliance with all emission limitations and conditions in the permit constituted compliance with all applicable requirements for the source under the federal Clean Air Act and Wisconsin Law.

In the December 12 policy statement, WDNR decided that in the future, the agency would not include permit shield protection in new Title V air permits, unless (among other things), the permit applicant conducts (and submits to WDNR) a comprehensive written explanation of "every change over the entire life" of each emissions unit at the facility to ensure that none of the changes made to the unit or maintenance activities on the unit constituted a "modification" within the meaning of federal and Wisconsin New Source Review rules.  See Items 5 and 6 on page one of the Executive Summary in WDNR's policy document.

Of course, this means that few, if any, companies with facilities in Wisconsin will be requesting permit shield language in the future for their Title V air operating permit renewals.  The new WDNR policy will effectively mean that the permittee would have to put itself through what would amount to a "voluntary" Section 114 Information Inquiry on all physical changes and changes in operation for every emissions unit in the permitted facility -- going back to the original installation/construction of the equipment.  I don't know of many companies in this current economy that would have the time or resources (or the inclination) to do this.

And for what benefit?  Such a due diligence report, if it was ever actually filed with WDNR, would only invite second-guessing and additional questions on certain projects -- further delaying what has already become an interminably long process.  The environmental groups in Wisconsin would scrutinize such reports if they were ever filed with WDNR.  And in the end, you have to ask yourself, "How many Title V permit shields have ever stopped a federal NSR enforcement case from being filed and prosecuted in the first place?"

There is likely to be some "push back" on this new policy by various industry groups here in Wisconsin.  The hope is that officials in the Governor's Office and higher level WDNR officials will exercise some judgment and restraint in this matter.  We'll see how that plays out in the next several months.

EPA Enforcement: Cleaning the Cleaners

Posted on March 7, 2012 by Stephen Leonard

Businesses that use volatile organic compounds (VOCs) in their industrial processes have long been regulated under the Clean Air Act and State Implementation Plans (SIPs) approved under the Act.  The Massachusetts Department of Environmental Protection Air Pollution Control Regulations, for example, contain very specific VOC control requirements at 310 CMR 7.18 for dozens of types of businesses and industries.  They regulate manufacturing processes (vinyl, polystyrene resin); surface coating (metal furniture, metal can, large appliance, magnetic wire, automobile, metal coil, miscellaneous metal, fabric, vinyl, plastic parts, leather, wood products, flat wood paneling); finishing (textiles, automotive refinishing); and degreasing.  The regulations prohibit use of cutback asphalt, and they limit the volatile portion of the inks used in various printing lines.  And, famously, they regulate the emissions, and hence the nostalgia-inducing aroma, of bakeries.

All of this is necessary because VOCs are a precursor to ozone, one of the original six “criteria pollutants” that Congress required EPA (and the states, through their EPA-approved SIPs) to control, in order to meet the National Ambient Air Quality Standards that EPA set for those pollutants.  Notwithstanding a long history of VOC regulatory enforcement, the air quality in all of Massachusetts – indeed all of southern New England – remains in “non-attainment” with the NAAQS for ozone.

EPA Region 1, which is based in Boston, has recently focused on a particular aspect of the problem:  the release of VOCs in connection with operation of “industrial laundries”.  These facilities serve the laundering needs of many different kinds of businesses and institutions – those, like hospitals, that require a steady supply of clean uniforms, and those, like print shops, that use towels to clean their equipment and therefore need a steady supply of fresh ones.  Some of those uniforms and towels contain volatile organic compounds.  And the VOCs can be released at various stages of an industrial laundry’s process of handling them for its customers, including collection, storage, transport, and washing of laundry.

EPA’s initiative has included information requests sent pursuant to Section 114 of the Clean Air Act, 42 U.S.C. 7414, and seeking detailed information about the laundries’ collection practices, their storage equipment, their operations and materials usage and – notably – their customers.  Based on the responses, EPA has required emissions testing at certain facilities, and it has issued Notices of Violation.  In one case during the summer of 2011, the Department of Justice, on behalf of EPA, sued an industrial laundry in New Hampshire (southern New Hampshire does not attain the ozone standard), alleging that the facility’s construction and operation, without prior approval, constituted violations of, among other things, the New Source Review provisions of the Clean Air Act.  The Consent Decree which settled the case requires payment of a civil penalty, modification of operating practices, installation of pollution control equipment, purchase and retirement of Emission Reduction Credits and implementation of a Supplemental Environmental Project. 

EPA continues its enforcement efforts with respect to other facilities in New England.  Whether those efforts will ultimately be successful in bringing southern New England, or parts of it, into compliance with the NAAQS for ozone is open to question, given the persistence of the problem and the wide variety of sources for precursor pollutants.  It is clear, though, that enforcement activity with respect to industrial laundries forms a part of EPA Region 1’s ozone-control strategy.  Other regions with similar non-attainment problems may be close behind.

BRIEFING IN COMPLEX CASES: The More You Have To Say, The Fewer Words You May Have To Say It

Posted on January 30, 2012 by Andrea Field

On August 8, 2011, EPA published its very lengthy Cross-State Air Pollution Rule (CSAPR).  An indication of CSAPR’s complexity -- and its unpopularity with those affected by it -- is that its promulgation prompted states, cities, labor unions, industry trade associations, and individual industry sources to submit to EPA 62 requests for administrative reconsideration and to file 45 petitions for judicial review of the rule.  Because CSAPR is a Clean Air Act rule of “nationwide scope and effect,” under § 307(b), the 45 petitions challenging that rule had to be filed in the D.C. Circuit. 

The focus of my article today is not the content of CSAPR (though there is much in the final rule that is a cause for concern), but rather on some of the procedural difficulties faced by large groups of appellants challenging a complex EPA rule in the D.C. Circuit.  In particular, my focus is on the restrictions placed by the court on the number and length of briefs that can be filed in a case that involves 45 aligned petitioners who say they have over 55 substantive issues that they want to raise in their principal briefs. 

Under Rule 28.1(e) of the Federal Rules of Appellate Procedure (FRAP), an “appellant’s principal brief . . . is acceptable if . . . it contains no more than 14,000 words . . ..”  In a case involving only one appellant challenging a simple agency rule, the D.C. Circuit has appropriately interpreted FRAP 28.1(e) as allowing that one appellant to file a principal brief not to exceed 14,000 words.  But what happens when dozens of aligned petitioners challenge an extremely lengthy and complex agency rule?  And what happens when -- fearing the “speak now or forever hold your peace” aspects of Clean Air Act § 307(b) -- those numerous aligned appellants must address scores of different aspects of the final rule? 

In Alabama Power Co. v. Costle, the first complex Clean Air Act case brought in the D.C. Circuit, the court came up with an innovative -- and effective -- way of allowing the aligned petitioners to present their concerns.  In that case, the court’s Chief Staff Counsel oversaw a process that allowed the aligned petitioners to file a joint statement of the case and a reasonable number of separate, reasonable-length issue briefs.  (In an interview with Business Week during the litigation, the three judges hearing that case commented favorably upon the approach that their Chief Staff Counsel had developed.) 
   
In the decades following the Alabama Power litigation, however -- as the number and complexity of EPA rules has grown, spawning more lawsuits by increasingly larger numbers of appellants -- the D.C. Circuit has taken steps that have reduced substantially the number and length of briefs that parties can file.  Typically, motions panels on the court direct aligned petitioners, even very large numbers of aligned petitioners, to file just one -- or at most two -- 14,000-word briefs.  And perhaps they will allow a short additional brief to be filed by intervenors and amicus curiae in support of petitioners.  But rarely (if ever) will the D.C. Circuit take the hands-on approach that it did in Alabama Power, i.e., being actively involved in figuring out what the key issues are and ensuring that enough space is devoted to the briefing of each such issue.  Thus, it was not a surprise when, on January 18, 2012, the D.C. Circuit issued a briefing order in the CSAPR litigation, authorizing the 45 aligned petitioners to file “no more than two briefs, not to exceed a combined total of 28,000 words” and allowed intervenors and amicus curiae in support of petitioners to file just one joint “not to exceed 7,000 words[.]” 

Most appellants in these kinds of cases understand (and may even empathize with) the desire of the reviewing judges not to have to read dozens of lengthy briefs addressing the inner workings of labyrinthine Clean Air Act programs.  However, as EPA develops ever-more-complex regulatory programs -- programs that, under the terms of Clean Air Act § 307(b),  must be challenged upon promulgation -- petitioners are in a bind.  Aware that there will be a limit on the amount of space they will have in which to explain a challenged EPA program and to articulate why parts of that program are unlawful, petitioners must often choose to brief only a few issues, thus perhaps waiving their rights to challenge other program elements that are of concern. 

Conspiracy theorists among us might be questioning whether court limits on briefing serve as motivation to EPA to make new regulatory programs even more complex.  In particular, such individuals wonder whether EPA rule drafters are now producing more complicated rules because they know that the more complex new rules are, the less likely it is that rule challengers will -- under current court procedures -- be able to present their concerns fully to the reviewing court. 

This surely had to have been in the mind of one attorney who several years ago had to present oral argument in the D.C. Circuit on an issue which had to be briefed in very few words.  During argument, she was told by one of the judges that she might well have a good point, and it was just too bad that the point had not been developed more fully in her brief.  The advocate in that case is to be commended for not losing her cool and condemning a system under which words per petitioner seem to be allocated in inverse proportion to the complexity of the case(s) before the court.  But she was almost certainly thinking something along those lines.

And speaking of lines, I offer the following lines of verse to make this point: 

The rules produced by EPA
Have caused concerns for years.
But parties once thought courts would hear
Their views with open ears.
In complex cases of today,
Those ears are closed, I fear.
It seems the more you want to say,
The less the courts will hear.      

Unintended Consequences and the Big Band Sound

Posted on January 20, 2012 by Kevin Finto

My father introduced me to the big band sound he grew up with in the ‘20s, ‘30s and ‘40s.  In addition to the musical skirmishes between the powerful brass and elegant woodwind sections that highlighted the genre, he was fond of the lyrics.  One of his favorite ditties was a playful calypso tune written by Sy Oliver and Trummie Young, first recorded by Jimmie Lunceford in 1939.  The enlightened refrain gives the recipe for being highly effective -- “Tain’t what you do, it’s the way that you do it – that’s what gets results.”  At about the same time Lunceford was leading his show band, sociologist Robert J. Merton was focusing on avoiding the wrong results.  He popularized the concept of “unintended consequences,” the gist of which is humans cannot fully control the outcome of their actions so be careful what you do and for what you ask.  Seventy-five years later, EPA’s recent proliferation of regulations with short time fuses and no existing or foreseeable means of compliance demonstrates no such careful thought.

Merton’s analysis provided five causes for unintended consequences:  ignorance, error, immediate interest, basic values and self-defeating prophecy.  While these five causes could form the outline for comments on almost any rule, the one that might be most applicable to EPA’s recent flurry of regulatory activity is what Merton called “the imperious immediacy of interest” which refers to instances where the actor’s paramount concern with the immediate action excludes the consideration of further or other unforeseen consequences of the same act.  The speed in which the recent rules have been promulgated, the leap in technology that they require, and the brevity of the time period by which compliance is required are unprecedented and seem destined to result in unintended consequences.

Examples of these rules include the corporate average fuel economy (“CAFE”) standards which EPA established in 2009.  Under the CAFE standards, Model Year 2011 vehicles must achieve 27.3 mpg.  The requirement is ratcheted up to 35 mpg by 2016, and a whopping 54.5 mpg by 2025.  Those developing the standards were warned that the standards would result in the production of smaller, lighter and deadlier cars.  The developers not only required increased mileage, they limited greenhouse gases (GHGs), including CO2 emissions, from motor vehicles – the first time that GHGs were regulated as air pollutants under the Clean Air Act.  Standard developers also recognized that regulating GHGs as pollutants for mobile sources would also trigger regulation of GHGs from stationary sources under the Clean Air Act’s prevention of significant deterioration of air quality program.  The latter was not an unintended consequence, but where such regulation might lead our economy and society is anyone’s guess.  We need only look at the recent reports of spontaneous combustion of electric vehicles to get some idea.

Another example is EPA’s issuance of the cross-state air pollution rule which afforded electric generating facilities only four months between its promulgation and the date of compliance on January 1, 2012.  EPA promulgated the rule amid warnings by states and others that the electric system reliability was jeopardized.  Fortunately, the D.C. Circuit stayed the rule on December 30.  Similarly, EPA pushed out the EGU MACT standard after allowing itself only a few months to consider tens -of -thousands of comments on the proposed rule.  Such speed of promulgation without regard for unintended consequences has EPA staffers concerned about the quality of their work product.  Perhaps it’s time to revisit the requirements for regulatory impact analysis to consider new rules in light of Merton’s five causes of unintended consequences and Lunceford’s catchy tune.  The alternative may be to sing another tune Lunceford popularized -- Blue in the Night.


EPA Proposes New Boiler MACT Standards

Posted on January 5, 2012 by Karen Crawford

By: Karen Aldridge Crawford and Stacy Kirk Taylor
      Nelson Mullins Riley & Scarborough

On December 2, 2011, EPA proposed its fourth round of regulations governing industrial boilers and process heaters (i.e. the boiler MACT standards).  [EPA Notice]  Although additional changes are unlikely (given that this is EPA's fourth set of revisions), EPA is providing a 60-day comment period and does not expect to finalize the regulations until spring (likely April) of 2012.

EPA maintains that the reworked regulations provide greater flexibility, reduce the number of boilers to which the regulations would actually apply, and will ultimately cut the cost of implementation by nearly 50% from the original 2010 proposed rules.  Groups such as the National Association of Manufacturers, however, remain opposed and continue to press for a legislative fix if EPA fails to sufficiently consider the added expense that even the newly proposed regulations will impose on goods manufactured in the United States.  In response to EPA's issuance of the proposed rules, Senator James Inhofe (R-Okla.) of the Senate Committee on Environment and Public Works stated that, although he appreciated EPA's acknowledgment of the potential economic impacts and efforts to revise the rules, the revised rules would still have too great an economic impact on the United States.  Sen. Inhofe then pressed Senate Majority Leader Harry Reid (D-Nev.) to allow a vote on the House-passed EPA Regulatory Relief Act. 

[Inhofe's Comment]   

According to EPA, the major source proposal, which is the part of the proposed regulations that impose actual control technology, would now cover less than 1% of the boilers in the United States (approximately 14,000 boilers).  For boilers located at smaller facilities, such as universities, hospitals, and commercial buildings, only a very small number would actually have to take any additional steps to comply with the proposed rule; the vast majority would simply be required to perform maintenance and routine tune-ups.  Highlighting some of the specific changes, the proposed regulations:

•    Set new emission limits for mercury, hydrogen chloride, particulate matter, and carbon monoxide (the last two of which serve as surrogates for metallic and organic pollutants), many of which, however, are as stringent or actually more stringent than the limits provided in the previous version of the regulations.

•    Increase the number of boiler subcategories (for which subcategory-specific emissions limits are proposed) to fourteen.

•    Eliminate the numeric emission limit for dioxins/furans, noting in the preamble that the level     previously proposed could not be accurately measured with existing technology, and instead tackle dioxin/furan emissions by imposing work practice standards that include periodic tune-ups to ensure good combustion. 

•    Provide greater flexibility than was previously allowed by providing for the use of a variety of     alternative emissions limits and compliance demonstration methods (for example, a facility with more than one boiler can now choose to average emissions as long as the source as a whole is less than 90% of the applicable standard). 

•    Eliminate requirement for continuous monitors for particulate matter. 

•    Revise the compliance deadlines, providing three years from publication of the final rule to comply (the June 4, 2010 date of the initial proposed regulations, however, will remain the date for determining whether a unit is considered a "new" or "existing" unit).  

In conjunction with reworking the boiler MACT standards, EPA revisited the Commercial/Industrial Solid Waste Incinerators (CISWI) rules and the Non-Hazardous Secondary Material (NHSM) rules to provide greater clarity and flexibility as to what types of secondary materials constitute a non-waste fuel.  The changes to the regulations also expressly classify a number of secondary materials as non-wastes when used as fuel and provide a mechanism for requesting such a determination from EPA for other materials.

So What If It Is in the SIP …

Posted on December 15, 2011 by Carolyn Brown

EPA’s Draft Guidance for 1-Hour SO2 NAAQS SIP Submissions has been out for public comment since this fall and, after an extension published on October 28, 2011 at 76 FR 66925, the comment period will close December 2, 2011.  Many parts of this draft guidance may trigger comments, but one particularly troubling aspect from a programmatic perspective is EPA’s discussion in Appendix B of infrastructure SIP requirements under Clean Air Act Section 110(a)(2).


Section 110 of the Clean Air Act requires states to prepare plans for implementation, maintenance and enforcement of the National Ambient Air Quality Standards (NAAQS) and to submit those plans to EPA for approval.  The statute specifies in general terms the required content of these State Implementation Plans (SIPs).  EPA has issued regulations at 40 CFR Part 51 that address the requirements for SIP submittals.  When changes to the NAAQS occur such that the state will need to update its SIP to show how it will attain and maintain the new or revised NAAQS, EPA’s regulations allow states to certify that their existing approved infrastructure SIPs are adequate to address the elements of Section 110 and then focus on specific changes to address the new or revised standard.


The particularly disturbing portion of EPA’s draft guidance is the discussion of how to  address existing approved SIP provisions that treat excess emissions from startup, shutdown and malfunction events in a manner that EPA views to be inconsistent with agency guidance, or how to address variance and director’s discretion provisions that EPA says “do not comport with EPA policy.”  Guidance, at B-3.  EPA says it is “discussing options for resolving these issues” and notes that it has negotiated a settlement agreement to specify a deadline of August 31, 2012 to respond to a Sierra Club petition over SSM provisions in 39 states.  EPA then goes further:  “Therefore, as general guidance, EPA can advise that states not make infrastructure SIP submissions that rely on previously approved but potentially flawed provisions.”  Id., at B-4.  


There are mechanisms under the Clean Air Act to address deficiencies in SIPs – guidance from EPA to ignore approved SIP provisions is not one of the options.  As the Supreme Court recognized in General Motors Corp. v. United States, 496 U.S. 530, 540 (1990), the existing SIP that has been approved under Section 110 of the Clean Air Act is the legally enforceable SIP.  In that enforcement action, the issue was the ability to enforce an existing SIP provision where a revision had been adopted by the state and EPA had not acted on the request to approve the revision in a timely manner.  The suggestion in the draft guidance that existing approved SIP provisions be ignored based on EPA policy does not comport with the Clean Air Act or case law. 

South Coast Launches Major NSR Reform Effort

Posted on December 12, 2011 by Robert Wyman

After several years of rapidly escalating offset prices, the South Coast Air Quality Management District (SCAQMD) has launched a major effort to consider near- and long-term reforms to the offset component of its nonattainment new source review (NSR) program (under 11/15/11 “New Source Review Roundtable Discussion on Emission Offsets” heading).

Congress added the offset requirement as part of the 1977 amendments to the Clean Air Act (CAA).  The idea was to ensure that new economic activity would not thwart progress made by states as they executed their state implementation plans (SIPs).  Under the CAA offset requirement, major new and modified stationary sources are required to offset their projected net emission increases by reducing surplus emissions from other sources.  As predicted during the most recent Congressional overhaul of the Clean Air Act in 1990, however, increased stationary source regulation, tighter major source definitions (e.g., 10 tons per year in the South Coast), and higher (greater than 1:1) offset ratios have finally squeezed some regional offset markets to the point where the offset program now impedes even the cleanest economic growth.

In the South Coast, for example, stationary source emissions have become an ever-diminishing part the overall emissions inventory (e.g., <10% of VOC emissions).  And there are virtually no remaining surplus control opportunities for stationary sources; so the only source of traditional offsets has been the shutdown of existing facilities.  Under the South Coast rules, however, even those reductions are not made fully available as offsets until they are first discounted to current control (i.e., lowest achievable emission rate, or LAER) levels.  The drastically shrinking pool of available offsets has caused the price of offsets to rise to unprecedented levels.  PM10 offsets, for example, hit a peak price in 2009 of $350,000 per daily pound of emissions.  Recent VOC offsets have cost more than $2,400 per pound, NOx more than $50,000 per pound, SOx more than $12,500 per pound and CO more than $5,000 per pound.  All of these numbers far exceed the $10,000 per ton upper bound contemplated as control costs to comply with the EPA’s 1997 standards for ozone and fine PM.  See Presidential Memorandum, “Implementation of Revised Air Quality Standards for Ozone and Particulate Matter (“There is a strong desire to drive the development of new technologies with the potential of greater emission reduction at less cost.  It was agreed that $10,000 per ton of emission reduction is the high end of the range of reasonable cost to impose on sources.  Consistent with the State’s ultimate responsibility to attain the standards, the EPA will encourage the States to design strategies for attaining the PM and ozone standards that focus on getting low cost reductions and limiting the cost of control to under $10,000 per ton for all sources.”).  62 Fed. Reg. 38421, 38429 (July 16, 1997).

The net effect of the scarce offset supply and astronomically high prices has been to slow regional economic development to a crawl.  For example, offsets to support new natural-gas fired power plants, necessary to back up the state’s renewable power program, have been almost impossible to find and have cost from $50 to $200 million per plant.  Other facilities have faced daunting offset costs as well.  The District’s cost estimates include several shocking numbers, including $12-77,000 for emergency backup generation for a police station, $106-234,000 for a gasoline service station, up to $358,000 for a printing facility, $178-435,000 for an auto body shop, in excess of $1 million for a food processing facility (e.g., a tortilla fryer and oven), from $1-2 million for a sewage treatment plant expansion, well over $1 million for a hospital boiler and $78-115 million for landfill gas recovery.  Although California has led the national clean energy investment effort, without material reform the SCAQMD will almost certainly be unable to offset emissions from the desired low-carbon biofuel or biomass-based renewable electricity projects in the region.  The offset requirement thus threatens to prevent much of the cleanest form of economic growth in the region.

The SCAQMD has identified a handful of near-term adjustments to its NSR program that could reduce the demand for offsets.  These include, for example, the use of an annual rather than peak monthly averaging period to calculate the offset need.  Increasing offset supply will be much more difficult, however.  That is because almost all as-yet-untapped strategies (e.g., identifiable mobile and area source reductions) have been identified and targeted as part of the region’s long-term SIP and thus may to some extent be ineligible as a supply of offsets.

The time has long since come for the District to replace the current offset program with an alternative (such as a clean technology fund) that can continue to improve air quality by accelerating, rather then impeding, clean technology development in the South Coast.  In addition to satisfying air quality improvement needs, rapid clean technology development also is needed to employ an ever-growing regional population and to meet the state’s ambitious clean energy and carbon reduction goals.  There is a win-win strategy to be found.  But it will require frank acknowledgement that the Clean Air Act offset program has served its purpose and now impedes, rather than aids, progress.  Most stakeholders are ready to work together to find a better mousetrap to promote rapid investment where and when we most need it.  We need it immediately in Southern California and the South Coast deserves enormous credit for launching this critical and timely reform effort.

U.S. EPA PROPOSES REVISIONS TO CLEAN AIR ACT REGULATIONS IMPACTING THE OIL AND GAS INDUSTRY

Posted on November 21, 2011 by Chester Babst

On August 23, 2011, the United States Environmental Protection Agency (EPA) published a package of four proposed rules governing air emissions from the oil and gas natural gas industry.   For the first time, EPA is targeting emissions from gas wells drilled by hydraulic fracturing.  76 Fed. Reg. 52738 (August 23, 2011).  The proposals include source performance standard (NSPS) for volatile organic compounds (VOCs), an NSPS for sulfur dioxide, and air toxics standards for both oil and natural gas production and natural gas transmission and storage.  EPA estimates these proposed rules would apply to more than 25,000 oil and gas wells drilled each year in the United States.

The proposed rule would require industry to use “green completions” (also known as reduced emissions completions) to capture emissions at wells being prepared for production  In addition, the proposed rule establishes emission limits at pneumatic controllers and condensate storage tanks.  Natural gas processing plants would be subject to more rigorous leak detection and repair requirements, and operators would be required to comply with specific maintenance and equipment standards for compressors.  EPA also has proposed to eliminate the one ton per year benzene compliance option for glycol dehydrators at major sources.

The proposed regulations were issued pursuant to a Consent Decree with WildEarth Guardians and San Juan Citizens Alliance.  That Consent Decree resolved a complaint that alleged that EPA failed to review the NSPS and air toxic standards for the oil and gas industry pursuant to the Clean Air Act.  EPA will accept comments until November 30, 2011, and expects to issue a final rule by April 3, 2012.

 

U.S. EPA PROPOSES REVISIONS TO CLEAN AIR ACT REGULATIONS IMPACTING THE OIL AND GAS INDUSTRY

Posted on November 10, 2011 by Chester Babst

On August 23, 2011, the United States Environmental Protection Agency (EPA) published a package of four proposed rules governing air emissions from the oil and gas natural gas industry.   For the first time, EPA is targeting emissions from gas wells drilled by hydraulic fracturing.  76 Fed. Reg. 52738 (August 23, 2011).  The proposals include source performance standard (NSPS) for volatile organic compounds (VOCs), an NSPS for sulfur dioxide, and air toxics standards for both oil and natural gas production and natural gas transmission and storage.  EPA estimates these proposed rules would apply to more than 25,000 oil and gas wells drilled each year in the United States.

The proposed rule would require industry to use “green completions” (also known as reduced emissions completions) to capture emissions at wells being prepared for production  In addition, the proposed rule establishes emission limits at pneumatic controllers and condensate storage tanks.  Natural gas processing plants would be subject to more rigorous leak detection and repair requirements, and operators would be required to comply with specific maintenance and equipment standards for compressors.  EPA also has proposed to eliminate the one ton per year benzene compliance option for glycol dehydrators at major sources.

The proposed regulations were issued pursuant to a Consent Decree with WildEarth Guardians and San Juan Citizens Alliance.  That Consent Decree resolved a complaint that alleged that EPA failed to review the NSPS and air toxic standards for the oil and gas industry pursuant to the Clean Air Act.  EPA will accept comments until November 30, 2011, and expects to issue a final rule by April 3, 2012.

 

 

EPA’s Proposed New Air Standards Affecting the Oil and Natural Gas Industry

Posted on October 23, 2011 by Donald Shandy

On August 23, 2011, the United States Environmental Protection Agency (EPA) proposed new air standards for the oil and natural gas industry (the Proposed Rule).  The Proposed Rule includes EPA’s first federal air standards for wells that are hydraulically fractured, along with requirements for several other sources of pollution in the oil and natural gas industry that currently are not regulated at the federal level. There are four major air components of the Proposed Rule: (1) a New Source Performance Standard (NSPS) for volatile organic compounds (VOC); (2) an NSPS for sulfur dioxide (SO2); (3) an air toxics (NESHAP) standard for oil and natural gas production; and (4) an air toxics (NESHAP) standard for natural gas transmission and storage.


Section 111 of the Clean Air Act (CAA) requires EPA to set NSPS for industrial categories that cause, or significantly contribute to, air pollution that may endanger public health or welfare. These performance standards must reflect the degree of emission limitation achievable through the application of the “best system of emission reduction” (BSER), which EPA determines has been adequately demonstrated within the industry. 


EPA’s existing NSPS for VOCs were issued in 1985. The existing standards address only VOC leak detection and repair (LDAR) at new and modified natural gas processing plants.  Other potential sources of VOC emissions in the oil and natural gas industry currently are not subject to nationwide regulation.  EPA is proposing new standards for several processes or pieces of equipment used in oil and gas production that have not previously been subject to federal regulation, including: well completions at new hydraulically fractured natural gas wells and at existing wells that are fractured or “re-fractured,” which would require the use of “green completions”; centrifugal and reciprocating compressors; pneumatic controllers; and condensate and crude oil storage tanks.


The NSPS for SO2 were also issued in 1985 and apply only to natural gas processing plants. EPA is proposing to strengthen the performance standards for plants processing gas with the highest hydrogen sulfide content in order to further reduce sulfur dioxide emissions from these facilities.

Section 112 of the CAA requires EPA to address emissions of hazardous air pollutants (HAP) from stationary sources.  Section 112(d) requires EPA to promulgate NESHAPs applicable to major sources of HAPs.  For major sources, technology-based maximum achievable control technology (MACT) standards must reflect the maximum degree of emission reductions achievable, considering cost, energy requirements, and non-air quality benefits and environmental impacts.  Unlike Section 111 NSPS standards that apply only to new or modified sources, Section 112 standards are applicable to both new and existing stationary sources.  EPA is proposing changes to the NESHAP standards for major sources in both the natural gas production and storage and transportation subcategories.


The public comment period on the Proposed Rule currently runs through October 24, 2011.  It will be interesting to track the response from the oil and natural gas industry to EPA’s proposal. 

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.