GHG Regulation under PSD and Title V

On December 23, 2010, the Environmental Protection Agency (“EPA”) released six more rules designed to make sure that all areas of the country are, or will be, covered by a Clean Air Act program that includes permitting requirements for greenhouse gas (“GHG”) emissions in accordance with EPA’s Tailoring Rule.  Most of these rules were published in the Federal Register by the end of the year.

The rules are designed to address the fact that the Tailoring Rule does not automatically take effect in those states that have a Prevention of Significant Deterioration (“PSD”) permitting program that is part of the state’s federally approved and enforceable air quality regulatory program, known as the “state implementation plan” (“SIP”).  For the Tailoring Rule to take effect in most of these “SIP-approved” states, the states themselves must adopt EPA’s regulatory changes into their SIP, and then EPA must approve those SIP revisions.  Currently, many states’ approved SIPs still contain rules that would be inconsistent with the Tailoring Rule, which took effect January 2, 2011.  Many states have not been able to make the necessary revisions to their SIP, much less get them approved by EPA.  With the six new rules, EPA seeks either to make sure that all state SIPs are narrowly tailored to match the federal rules, or to provide EPA itself sufficient authority to take over the state programs and begin issuing greenhouse gas permits. The validity of these approaches, particularly considering the highly expedited manner in which they were adopted, will undoubtedly be a subject of litigation.

A copy of the text of the six new rules and the agency’s factsheet describing each rule is available here.

New EPA Performance Standards

Also on December 23, EPA announced that it had settled litigation with states and environmental groups that sought to compel EPA to establish New Source Performance Standards (“NSPS”) for GHG emissions from fossil fuel power plants and petroleum refineries.  Under the terms of these settlements, EPA will promulgate proposed NSPS for fossil fuel power plants on July 26, 2011 and final standards on May 26, 2012.  Proposed standards for petroleum refineries will be promulgated on December 10, 2011 and final standards on November 10, 2012.  Before the settlements become final, EPA will publish notice of them in the Federal Register and seek comment.

Both settlement agreements commit EPA to issue standards for new and modified facilities.  The power plant settlement also commits EPA to issue standards for existing facilities whether or not the facilities are modified, although these standards will be implemented under a somewhat different procedure and schedule.  Under Section 111(d) of the Clean Air Act, EPA may issue “guidelines” to the states requiring them to adopt and submit to EPA for approval standards for existing, unmodified facilities that conform to the EPA guidelines.  Although the settlement agreements do not specify the timeline for state adoption of standards for existing, unmodified facilities, EPA regulations provide that states must submit such standards to EPA for approval nine months after EPA promulgates standards for new and modified facilities (or nine months after May 26, 2012 per the settlement agreement).  Once the state standards are then approved by EPA and become effective, existing unmodified facilities must be given a reasonable amount of time to comply with the standards. According to press reports, in her remarks during the press conference announcing the settlement agreements, Assistant EPA Administrator McCarthy referred to a compliance period of 2015-2016, although that period is not specified in the settlement agreement.

The EPA press release announcing the settlement agreements, which links to the settlement agreements themselves, can be found here.

Texas Litigation

Late last week, Texas lost one bid in court to stay EPA’s GHG regulatory program in Texas, but won a temporary emergency stay in another. 

Thirteen states, including Texas, do not authorize GHG regulation and so cannot implement EPA’s Tailoring Rule requirements.  Among the rules EPA issued in December was a “SIP Call” requiring these states to change their laws to authorize GHG regulation within one year or become subject to a federally-promulgated implementation plan (“FIP”).  EPA also said, however, that if the states did not change their laws by January 2, 2011, these states would face a construction ban for sources emitting GHGs above the Tailoring Rule thresholds because the state would not be able to issue permits for those sources. EPA told these states that, to prevent the construction ban, the states could elect to establish an early SIP-submittal deadline of December 22, 2010.  This was a ruse promulgated with the knowledge that a number of states would not be able to change their laws by then. EPA would then declare these states to have violated the SIP Call and would impose a FIP by January 2.  EPA would then become the permitting entity for GHG-emitting sources, and there would be no construction ban.

In the wave of final regulations issued by EPA on the day before the Christmas holiday, EPA found that 5 of the 14 states would change their laws by the end of the year or shortly thereafter, so EPA didn’t need to take any further action for them.  Seven states would not be able to change their laws by then but had indicated that they accepted the December 22, 2010 deadline.  EPA found that these states had missed the deadline and imposed a FIP.

Texas, however, refused to change its laws, refused to take an early deadline, and refused to cooperate at all. In response, in the regulations issued shortly before Christmas, EPA issued an “interim” final rule imposing a FIP on Texas.  EPA did not provide for any notice or comment on this action.  Pursuant to the SIP Call, Texas was supposed to have one year before EPA imposed a FIP.  EPA took the position that Texas had already constructively told EPA it was not going to change its rule within one year, so EPA had authority to act immediately. EPA said it did so in the interest of sources in Texas, which otherwise would face a construction ban, according to EPA.  Texas’ position is that the Tailoring Rule is not applicable in Texas until Texas has been given a reasonable period of time to change its SIP.

On December 30, at Texas’ request, the D.C. Circuit issued an emergency stay of this interim final rule.  Since the Court acted on the same day that Texas filed its motion, in light of the impending New Year’s Day holiday, EPA did not have a chance to respond to the motion.  The Court ordered EPA to respond by this coming Thursday and Texas to reply by Friday.  Expedited action from the court can be expected.  This action, however, is likely to be restricted to judging whether EPA had properly acted against Texas through an interim final rule and without notice and comment.  Resolution of this issue will not likely affect other states.

Additionally, on December 29, 2010, Texas lost a bid in the Fifth Circuit to stay the SIP Call and FIP rules.  Instead of appealing these rules in the D.C. Circuit, Texas appealed them in the Fifth Circuit and asked for a stay. In addition to opposing the stay, EPA moved to transfer the case to the D.C. Circuit (or to dismiss the case) on the ground that the SIP Call and FIP rules are rules of national applicability which can only be heard in the D.C. Circuit.  Although the Court denied the stay, briefly saying that “Petitioners have not met their burden to satisfy the legal standards required to allow a stay pending appeal,” the Court did not act on the motion for transfer.  Thus, Texas’ appeal of the SIP Call and FIP Rule remain pending in the Fifth Circuit, with EPA’s motion to transfer or dismiss still pending.