Posted on August 6, 2010 by Deborah jennings

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

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

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

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

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

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

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

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

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

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