On September 30, 2009, EPA issued two new proposals on the road to regulating greenhouse gases (“GHGs”) under the federal Clean Air Act (“CAA”).  Coming on the heels of the release of the Boxer-Kerry draft climate change legislation, both proposals are fraught with legal and policy uncertainty and may further complicate an already complicated regulatory environment.  The first proposal is the so-called “tailoring” rule, and the second announces EPA’s proposal on reconsideration of the so-called Johnson memorandum.

“Tailoring” Rule

The “tailoring” rule is designed to address the potential consequences to potentially millions of relatively small sources of GHG emissions that otherwise may occur under the Prevention of Significant Deterioration (“PSD”) construction permit program and the Title V operating permit program when EPA finalizes its automotive GHG rule next March.
The PSD program requires new “major” stationary sources to obtain an air quality permit before commencing construction.  Under the CAA, a “major” source is one that has the potential to emit 250 tons per year (“tpy”) or more of a “regulated air pollutant” (or 100 tpy if the source is in one of 28 categories of large industrial sources). 

The PSD program also requires an existing “major” source to obtain an air quality permit before beginning construction on a modification that would result in a “significant” emissions increase.  The CAA does not define the term “significant.”  EPA’s regulations define a “significance level” for various pollutants, but also provide that where EPA has not supplied a “significance level,” a modification resulting in “any” emissions increase requires a PSD construction permit.  Under the PSD program, new and modified sources receiving PSD permits must install Best Available Control Technology (“BACT”) to reduce emissions of the regulated pollutant.

Title V permits are required of any source that has the potential to emit 100 tpy or more of a regulated pollutant.  No source emitting more than that amount of a regulated air pollutant may continue in operation without a Title V permit.

EPA’s proposed tailoring rules grew out of concern that, as soon as EPA regulates GHGs for the first time, GHGs will become regulated air pollutants under PSD and Title V, triggering permit requirements for all GHG sources that have the potential to emit more than 100/250 tpy.  Whereas 100/250 tpy is generally considered to be a significant amount of traditional air pollution, and such amounts are only emitted by a relatively small number of facilities, 100/250 tpy is not a significant amount of GHGs, particularly CO2.  According to EPA, more than one million sources have the potential to emit that much CO2.  As a result, regulating GHGs could result in an administrative catastrophe, as permitting agencies would be overloaded with permit applications, and permitting would grind to a halt.  Since sources cannot be constructed or operate without permits, the economic consequences could be disastrous.

To remedy this situation, the tailoring proposal proposes a two-phase program.  In phase one, the threshold for new sources under the PSD program would be set at 25,000 tpy, and the “significance level” for modifications would be set between 10,000 and 25,000 tpy, with EPA seeking comment on the appropriate level.  The Title V threshold would be set at 25,000 tpy.  During phase one, which would last for five years, EPA would study possible mechanisms for “streamlining” the permit application and processing requirements for sources below these thresholds.  Such “streamlining” measures could embrace such concepts as “presumptive BACT,” general permits, and permits by rule.  EPA stated that it would analyze and, if appropriate, adopt one or more of these streamlining measures and potentially reduce the thresholds within one year after the five-year study period ends, thus commencing phase two.  EPA also stated that there would be no grandfathering of sources permitted under phase one:  if EPA lowers the threshold during phase two, any source that escaped permitting during phase one could be required to obtain a permit and install BACT controls during phase two.

According to EPA, at the 25,000 tpy level, 400 PSD permit applications could be expected each year for new or modified facilities, compared with 280 currently received in a typical year.  For Title V, EPA says it expects that about 13,600 facilities would require permits as a result of their GHG emissions, as compared with approximately 14,700 Title V facilities today.  Currently, both the PSD and Title V permit systems are fraught with delay.  Thus, even at the 25,000 tpy thresholds proposed by EPA, obtaining a permit under these already over-burdened programs will likely take even longer than before.

Also of note in the tailoring rule, EPA proposed that six GHGs be collectively defined as the “air pollutant” for purposes of determining whether a facility’s emissions exceed the threshold.  EPA proposed to utilize carbon dioxide equivalent, or CO2e, to measure a facility’s total GHG emissions.  Under this methodology, for instance, methane would be assigned a CO2e value about 20 times that of CO2, given that methane traps that much more heat.  As a result, methane emitters such as coal mines, landfills and agricultural operations could be disproportionately affected by the rule.  EPA states that about 1700 landfills not previously subject to Title V regulation will now require Title V permits.

EPA recognizes the significant legal issues entailed in the agency more or less unilaterally changing the statutory thresholds from 100/250 tpy to 25,000 tpy.  EPA justifies its proposal on what it calls the doctrine of avoiding “absurd results” and the doctrine of “administrative necessity,” doctrines that EPA states the courts have been applied previously in “rare” circumstances.  A number of legal commenters, including some in the environmental community, have questioned the validity of EPA’s legal approach, which was first floated in the 2008 Advance Notice of Proposed Rulemaking on potential regulation of GHGs under the CAA.  Possible legal concern as to the validity of EPA’s approach could potentially morph into legal challenges, either on direct appeal of the regulations when made final or in citizens suits challenging a particular project.

Of particular concern in the proposed tailoring rule is the fact that the rule will not automatically change state PSD and Title V requirements.  As EPA notes, 43 states administer EPA’s PSD requirements through state programs embodied in state regulations.  As EPA also notes, although the tailoring rule will result in these state regulations no longer being federally enforceable, the state regulations will still retain the force of state law until and unless changed by the states.  According to EPA, “[a]s a result, states may wish to consider revising those state law provisions.”  On the other hand, EPA also notes that, “if a state wants to implement PSD [and Title V] at a threshold lower than 25,000 tpy CO2e, or implement a significance level lower than [10,000 to 25,000] tpy CO2e, for GHG emitters,” it would be free to do so.

This potential mismatch in timing and substance between state and EPA requirements could have enormous consequences for sources.  EPA expects to finalize its automobile GHG regulations by the end of March, and EPA states that GHGs will become regulated pollutants at that time. However, many states may not be able to change their PSD rules by then, given that many states will have to undertake notice and comment rulemaking and some may require additional legislation to do so.  As a result, the enormous permitting consequences that EPA wishes to avoid in the tailoring rule – including the fact that a very large number of facilities will not be able to commence or continue construction without a permit – may occur anyway, at least until states act.  And some states may choose lower thresholds than the one chosen by EPA.

Johnson Memorandum

EPA also issued a proposal yesterday to reconsider former EPA Administrator Stephen Johnson’s December 18, 2008 memorandum.  That memorandum responded to arguments from environmental groups that CO2 is already a regulated air pollutant, even before EPA finalizes its endangerment finding and regulates automobile GHG emissions.  Environmental groups argued, among other things, that CO2 is regulated because electric utilities are required to monitor and report their CO2 emissions.  The Johnson memorandum ruled that CO2 was not already regulated and would not be considered regulated unless and until EPA adopted a regulation requiring actual emission reductions. 

On February 17, 2009, new Administrator Jackson stated that she would reconsider the Johnson memorandum and, yesterday, she announced her proposed reconsideration.  After setting forth five possible interpretations of what “regulation” could mean for purposes of defining a “regulated air pollutant” under the PSD and Title V programs, she indicated that her preferred interpretation is the one already set forth in the Johnson memorandum – that “regulation” must mean actual emission reductions.

The issue in the Johnson memorandum will largely become moot for purposes of GHGs when EPA actually requires automobile GHG emission reductions at the end of March of next year.  At that time, GHGs will definitely be regulated air pollutants.  However, the issue of whether GHGs are currently regulated air pollutants could have implications for sources with PSD permit applications currently pending with EPA.

Comment Deadline

EPA has asked for comments on both proposals within 60 days of their publication in the Federal register, likely within a few weeks. The 416-page Tailoring Rule proposal, the Johnson Memo reconsideration proposal, and “fact sheet” summaries of each can be found at the following pages on EPA’s website:

The NSR Tailoring Rule Proposal

The NSR Tailoring Rule “Fact Sheet”

The Johnson Memorandum Reconsideration Proposal

The Johnson Memorandum Reconsideration “Fact Sheet”