On September 30th, U.S. EPA announced the release of its proposed rule regulating emissions of greenhouse gases (GHGs) from large industrial sources. The proposal represents a risky move by U.S. EPA in the event climate change legislative efforts fail and U.S. EPA is forced to move forward with the rules. The risk is two fold: 1) U.S. EPA's action is grounded in questionable legal authority; and 2) the action starts a process that eventually leads to regulation of small sources and issuance of millions of federal air permits.
Under the proposal, at least initially, only large industrial facilities that emit at least 25,000 tons of GHGs a year will be required to obtain construction and operating permits covering their emissions. The construction permits will come under U.S. EPA's New Source Review Program (NSR) and the operating permits will come under its Title V Program (Title V).
What does triggering NSR mean for these sources?
Once a source triggers NSR, it must go through a lengthy and complicated permitting review process. The review is designed to identify the best available control technology (BACT) which will reduce emission of the pollutant, in this case greenhouse gases (GHGs).
Unlike the proposed cap and trade legislation, each and every source triggering NSR will be required to go through this case by case review process and install controls. Under cap and trade, sources can either install controls or cover their emission by purchasing pollution permits (allowances). Therefore, cap and trades results in more cost effective reduction in emissions than a simple mandate on all sources.
What does coverage under Title V mean for these sources?
The Title V permit is meant to cover large sources that typically have multiple air permits or are subject to a variety of air pollution regulations. The purpose of Title V is to consolidate all these requirements into a single permit. Some Title V permits can be as large as 500 pages or more. Under the proposed rule, sources that emit more than 25,000 tons per year of CO2 or CO2 equivalent emissions (CO2e) will be required to obtain Title V permits.
What doesn't make sense is that some sources may only be covered by Title V permits because of their GHG emissions. This could result in the strange outcome of Title V permits that are virtually blank because those sources have very little other applicable air pollution regulations. The effectiveness of such an approach has to be questioned.
Key Issue: Established Thresholds Triggering NSR or Title V
Why is the EPA's action risky? The agency is proposing the "tailoring" thresholds applicable to GHG emissions that trigger regulation:
- 25,0000 tons of CO2e for new sources triggers NSR
- an emission increase of between 10,000 and 25,000 tons of CO2e from existing sources following a modification to the facility will trigger NSR
- Sources with 25,000 tons of CO2e will be required to obtain Title V permits after five years
Only problem is the Clean Air Act specifies the following thresholds:
- 100 tons from 28 specified industries trigger NSR for new sources
- 250 tons from all other types of sources trigger NSR for new sources
- 100 tons from any source triggers Title V
EPA notes that without modification of the thresholds 40,000 NSR permits would be triggered each year, where currently only 300 are triggered. Also, 6,000,000 sources would fall under the Title V program whereas the program only currently covers 15,000 sources.
Its a pretty basic tenant of law that Agencies must follow statutory law and cannot re-write them using regulations. Former Air Administrator Jeff Holmstead commented on this issue in the New York Times
"Normally, it takes an act of Congress to change the words of a statute enacted by Congress, and many of us are very curious to see EPA's legal justification for today's proposal,"
Major Risk #1- EPA could lose its legal argument that it has authority to raise the thresholds
How does the EPA claim it has the legal authority to raise the thresholds? Under the doctrines of "absurd results" and "administrative necessity." Both legal doctrines are similar in that Courts have recognized the ability of agencies to depart from the plain meaning of a statute if application would result in "absurd results" or there is an "administrative necessity."
EPA explains why these doctrines should apply in the preamble to the rule:
[T]o apply the statutory PSD (NSR) and title V applicability thresholds to sources of GHG emissions would bring tens of thousands of small sources and modifications into the PSD program each year, and millions of small sources into the title V program. This extraordinary increase in the scope of the permitting programs, coupled with the resulting burdens on the small sources and on the permitting authorities, were not contemplated by Congress in enacting the PSD and title V programs. Moreover, the administrative strains would lead to multi-year backlogs in the issuance of PSD and title V permits, which would undermine the purposes of those programs. Sources of all types- whether they emit GHGs or no- would face long delays in receiving PSD permits, which Congress intended to allow construction or expansion. Similarly, sources would face long delays in receiving Title V permits, which Congress intended to promote enforceability. (preamble pg. 20)
EPA goes on to state in the preamble that courts are "reluctant" to invoke the "absurd results" doctrine "precisely because it entails departing from the literal application of statutory provisions." However, EPA asserts this is "one of the rare cases" where it should apply. (preamble pg. 63)
If the Court disagrees with EPA's legal rationale, the rule would be rendered illegal and sent back to U.S. EPA. However, even without the "tailoring rule" NSR and title V would apply to GHG emissions.
EPA has stated its intent to move forward with other climate change regulations, such as the light-duty vehicle rule (which EPA says will be finalized no later than March 2010). After these rules are finalized, GHGs are considered a "regulated pollutant." If the attempt to raise the thresholds is thrown out, GHG status of a "regulated pollutant" would mandate application of the 100/250 ton NSR and 100 tons thresholds set forth in the Clean Air Act.
For this reason EPA's proposed rule represents a major gamble. Perhaps that is the leverage they are looking for in the climate change legislative negotiations. However, if things fall apart EPA may have crossed the point of no return.
Major Risk #2: The thresholds are temporary in nature resulting in regulation of much smaller sources in the future.
In U.S. EPA's Press Release Administrator Jackson states
“This is a common sense rule that is carefully tailored to apply to only the largest sources -- those from sectors responsible for nearly 70 percent of U.S. greenhouse gas emissions sources. This rule allows us to do what the Clean Air Act does best – reduce emissions for better health, drive technology innovation for a better economy, and protect the environment for a better future – all without placing an undue burden on the businesses that make up the better part of our economy.”
Jackson made the announcement regarding the proposed rule during a speech to the Governor's Global Climate Summit. In her remarks she made the following statement:
Defenders of the status quo are going to oppose this with everything they have. Very soon, we will hear about doomsday scenarios – with EPA regulating everything from cows to the local Dunkin’ Donuts. But let’s be clear: that is not going to happen. We have carefully targeted our efforts to exempt the vast majority of small and medium-sized businesses. We know the corner coffee shop is no place to look for meaningful carbon reductions.
While I do not assert EPA is going to regulating the local Dunkin' Donuts, I do think the EPA's description that it will only apply to the largest sources is misleading. EPA makes clear through out its preamble that the proposed 25,000 CO2e thresholds represents only a "first phase" of the rule. This is because EPA believes the "absurd results" and "administrative necessity" doctrines, if applicable, only provide temporary relief from the Clean Air Act stated thresholds.
EPA says that "if variance from the statutory requirements nevertheless is necessary to allow administrability, the variance must be limited as much as possible." (preamble pg. 20). EPA describes the process in its preamble as follows:
The first phase, which would last 6 years, would establish a temporary level for the PSD and title V applicability thresholds at 25,000 tons per year (tpy), on "carbon dioxide equivalent" (CO2e) basis, and a temporary PSD significance level for GHG emissions of between 10,000 and 25,000 tpy CO2e. EPA would also take other streamlining actions during this time. Within 5 years of the final version of this rule, EPA would conduct a study to assess the administrability issues. The, EPA would conduct another rulemaking, to be completed by the end of the sixth year, that would promulgate, as the second phase, revised applicability and significance level thresholds and other streamlining techniques, as appropriate. (preamble pg.2)
EPA contemplates taking "streamlining activities" vaguely referenced as changing potential to emit calculations as well as creation of general permits. EPA also states "we expect permitting authorities to ramp up resources for permit issuance." (preamble pg. 64). Taking these actions will allow EPA to "bridge the gap between literal language and congressional intent", thereby making it possible to "include more of these sources" in the NSR and Title V program. (preamble pg. 70).
As a result, EPA is clearly stating its intent that more and more sources fall under the NSR and title V programs by gradually reducing the thresholds over time down to the Clean Air Act statutorily established thresholds. While EPA may state that their intent is to only gradually phase in smaller source over many years, the argument will be how quickly can "streamlining" techniques be implemented and more permit reviewers hired to bring more and more sources under the program.
Therefore, EPA's proposed rule fails to set forth a policy statement that regulation of small sources of GHGs is illogical. Rather, EPA states it needs more time and resources to bring these sources under the program. By no means am I a defender of the status quo, but it is certainly fair to question whether this is the best approach to addressing climate change.