Background
In Massachusetts v. EPA (2007), the Supreme Court held that greenhouse gases (GHGs) constitute air pollutants that can be regulated under the Clean Air Act (CAA). The Court further found that the Administrator of the Environmental Protection Agency (EPA) must determine whether GHG emissions from new motor vehicles “cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare.”
In response to the Supreme Court decision, in December 2009, EPA issued two final findings regarding the applicability of the CAA to GHGs. The first finding was that current and projected concentrations of six key greenhouse gases (carbon dioxide, methane, nitrous oxide, hydrofluorcarbons, perfluorocarbons and sulfur hexafluoride) in the atmosphere threaten the public health and welfare of current and future generations. This is referred to as the “endangerment” finding. The second finding was that the combined emissions of GHGs from new motor vehicles and motor vehicle engines contribute to the atmospheric concentrations of key GHGs and hence to the threat of climate change. This is referred to as the “cause or contribute” finding. Standing alone, these findings do not impose any requirements on industry. However, they are a prerequisite to final GHG standards for light-duty vehicles and are the predicate for additional GHG regulation of stationary sources.
In 2008, EPA issued an interpretative memo (known as the “Johnson Memo” after then EPA Administrator Stephen Johnson) finding that a pollutant is “subject to regulation” under the Prevention of Significant Deterioration (PSD) permit program (established in Title I of the CAA) when it is subject to either a provision in the CAA or becomes subject to a regulation adopted by the EPA that requires actual control of emissions of that pollutant. The significance of this interpretative memo is that once a pollutant becomes subject to regulation under one part of the CAA (mobile source regulation), it becomes subject to other parts of the act (stationary source PSD permit program). On April 10, 2010, EPA finalized the light-duty vehicle rule controlling GHG emissions and confirmed January 2, 2011 as the earliest date that a 2012 model year vehicle subject to the standards could be sold in the U.S.
In March 2010, EPA reaffirmed the Johnson Memo and established January 2, 2011 (the effective date of the light-duty vehicle standards) as the date that GHG requirements of the vehicle rule would trigger CAA permitting requirements for stationary sources.
The PSD permit program is separate from, but related to, CAA requirements for EPA issuance of NAAQS under Section 109 and state issuance of SIPs under Section 110 to attain and maintain compliance with those standards. In particular, Title I of the CAA includes permit programs for new major stationary sources (and major modifications to existing major stationary sources) of air pollutants. The PSD permit program under Subtitle C of Title I applies to sources within NAAQS attainment areas. The New Source Review (NSR) permit program under Subtitle D of Title I applies to sources in NAAQS nonattainment areas.
The PSD permit program is a pre-construction review and permit program. In general, the program requires sources to apply the best available control technology (BACT) to limit emissions of air pollutants.
Finally, Title V of the CAA includes an operating permit program for major sources of air pollutants. In general, Title V does not itself impose pollution control requirements but requires permits for those sources to include all such requirements otherwise applicable under the CAA. Title V is intended to improve compliance with CAA requirements.
Overview of Rulemaking
On May 13, 2010, EPA issued a final rule that establishes thresholds for regulation of GHG emissions from stationary sources. Stationary sources that meet the thresholds will be subject to PSD permit requirements and Title V operating permit requirements. Existing Clean Air Act statutory thresholds for criteria pollutants are 100 and 250 tons per year (TPY). If GHG emissions were subject to those thresholds, then, according to EPA estimates, 82,000 PSD permits would be required each year and 6 million facilities would require Title V operating permits. Many commercial establishments, apartment buildings, hospitals and schools could find themselves subject to EPA regulation under current thresholds. Thus, on the basis of administrative necessity, EPA is “tailoring” its requirements to reach the largest GHG emitters first.
EPA estimates, however, that facilities responsible for almost 70% of all national GHG emissions from stationary sources will be subject to the permitting requirements of the final rule. These sources include power plants, refineries, and cement production facilities.
Under Step 1 of the “tailoring” rule (January 2-June 30, 2011), sources already subject to PSD requirements would be required to implement GHG BACT requirements if a modification results in an emissions increase of 75,000 tpy or more of GHGs. Under Step 2 (July 1, 2011 to June 30, 2013), PSD permitting requirements will cover new construction projects that emit GHG emissions of at least 100,000 tpy even if they do not exceed the permitting thresholds for any other pollutant. Modifications of existing facilities that increase GHG emissions by at least 75,000 tpy will be subject to permitting requirements even if they do not significantly increase emissions of any other pollutant. EPA has estimated that approximately 900 additional PSD permitting actions will be triggered by increases in GHG emissions from new and modified emission sources.
Under Step 1, the Title V operating permit program will not be applicable to sources not already subject to Title V. Under Step 2, operating permits will be required for facilities that emit at least 100,000 tpy of GHGs even if Title V would not apply based on emissions of other pollutant. EPA has estimated that approximately 550 sources will need to obtain Title V operating permits for the first time due to their GHG emissions.
The tailoring rule also commits EPA to conduct another rulemaking that will determine whether certain smaller sources can be permanently excluded from permitting. EPA will not require permits for smaller sources until at least April 30, 2016.
Current Status
On June 26th, 2012, the U.S. Court of Appeals for the D.C. Circuit unanimously upheld EPA’s authority to set emissions limits for GHGs. The Court affirmed EPA’s Endangerment Finding, Mobile Source rules and upheld the Tailoring Rule on the grounds that plaintiffs lacked standing. While this litigation was pending, EPA initiated a number of steps necessary to regulate GHGs.
Because the PSD permit program and the Title V operating permit program are implemented through SIPs, those plans may require modification to reflect the requirements of the tailoring rule. On December 3, 2010, EPA identified thirteen states whose SIPs must be updated to include GHG emissions: Arizona, Arkansas, California, Connecticut, Florida, Idaho, Kansas, Kentucky, Nebraska, Nevada, Oregon, Texas and Wyoming.
On November 10, 2010, EPA announced the issuance of guidance for state air permitting authorities on BACT to reduce GHG emissions. Under this guidance, those authorities should take into account technical feasibility, cost and other economic, environmental and energy considerations to narrow and select options to reduce GHG emissions. EPA anticipates that the process outlined in its guidance will, in most cases, result in a determination that the most cost-effective option to reduce GJHG emissions will be through energy efficiency.
On December 23rd, 2010, EPA announced a settlement agreement with a number of environmental groups and states agreeing to promulgate New Source Performance Standard (NSPS) regulations for major sources. In general, the PSD program requires sources to apply the best available control technology (BACT) to limit emissions of air pollutants, determined on a case-by-case basis, and the NSPS program establishes a “floor” on what this technology can be.
Under separate EPA rules that were issued on October 30, 2009, certain sources of GHGs, beginning in 2010, are required to report GHG emissions to the EPA. Under current rules, suppliers of fossil fuels or industrial greenhouse gases, manufacturers of vehicles and engines and facilities that emit 25,000 metric tons or more per year of GHG emissions are required to submit annual reports to EPA. EPA has estimated that this rule, which applies to 31 industry sectors, covers 85 percent of total U.S. GHG emissions.
On October 7, 2010, EPA amended the GHG reporting rules. The amendments clarified and made technical changes to specific provisions of the reporting requirements. Numerous additional amendments have since followed.
On November 8, 2010, EPA issued a GHG reporting rule for the petroleum and natural gas industry. This final rule requires petroleum and natural gas facilities that emit 25,000 metric tons or more of GHGs per year to report annual methane and CO2 emissions from equipment leaks and venting, and emissions of CO2, methane and nitrous oxide from gas flaring and from onshore production combustion emissions and combustion emissions from natural gas distribution.
Also on November 8, EPA issued a reporting rule for fluorinated greenhouse gases. On November 22, EPA issued a final rule to require facilities that conduct geologic CO2 sequestration and all other facilities that inject CO2 underground to report GHG data. Finally, on November 24, EPA issued technical and editorial revisions to the GHG reporting rule.
On March 27, 2012, EPA released its proposed NSPS for new electric generating larger than 25 MW. This proposed rule would require all new power plants to emit no more than 1,000 lbs of carbon dioxide per megawatt hour generated. This emissions level is roughly equivalent to emissions from a combined cycle natural gas turbine, thus effectively eliminating new coal-fired power plants unless equipped with sequestration technologies. On June 25th, 2013, the President issued a Memorandum to EPA requiring a new rule to be proposed by September 20, 2013, which EPA has done. The new proposed rule does not differ materially from the initial proposed rule. The President also directed EPA to promulgate a rule applicable to existing power plants by no later than June 1, 2014 and a final rule by no later than June 1, 2015. On June 2nd, 2014 EPA proposed GHG standards for existing power plants that EPA estimates would result in a 30% reduction in CO2 emissions from the power sector by 2030 when compared to 2005 emissions levels. Under the proposed rule, states will have until June 2016 to submit initial state implementation plans, to be finalized in June 2017 for individual state plans and June 2018 for multi-state plans. EPA has proposed four building blocks that constitute the “best system of emissions reduction” for the power sector. These include increasing generating unit efficiency; increased utilization of natural gas generating units; construction of more low/zero carbon generation (nuclear and renewables); and greater end-user efficiency. While significant costs could be imposed on the power sector, the flexibility built into the proposed rule makes it difficult to predict its ultimate cost or feasibility. In addition, EPA is on uncertain legal ground in moving beyond a “source” for purposes of establishing emissions standards and compliance options.
On October 15, 2013, the Supreme Court granted certiorari and consolidated five cases challenging EPA’s interpretation of the Clean Air Act that regulation of CO2 under Title II of the Clean Air Act (mobile sources) requires regulation of stationary sources (the “Johnson memo” interpretation). The sole issue before the Court is: “Whether EPA permissibly determined that its regulation of greenhouse gas emissions from new motor vehicles triggered permitting requirements under the Clean Air Act for stationary sources that emit greenhouse gases.” On June 23rd, 2014, the Court found that EPA exceeded its statutory authority when it interpreted the Clean Air Act to require PSD and Title V permitting for stationary sources solely based on their GHG emissions. However, EPA may continue to treat GHGs as a “pollutant subject to regulation” for purposes of requiring BACT for sources otherwise subject to the PSD and title V permitting requirements based on their emissions of other pollutants.
Potential Impact of Regulation
The Clean Air Act was not designed and is ill-suited to regulate a ubiquitous pollutant like CO2. CO2 emissions do not pose a local or even national problem; whatever impact there may be is global. EPA is being challenged in court on every significant decision involving this program and thus it is not clear what the GHG regulatory program ultimately will entail.
*Please note: This document is current only as of the date listed below