With Climate Legislation Uncertain, Challenges to EPA’s Ability to Regulate Greenhouse Gases Mount

On June 18th, the U.S. Court of Appeals for the District of Columbia Circuit set aside one group of challenges to EPA’s controversial finding that greenhouse gas emissions endanger human health and welfare (the Endangerment Finding). The court ruled that 17 consolidated appeals, Coalition for Responsible Regulation v. U.S. Environmental Protection Agency, will be held in abeyance until EPA resolves pending petitions to reconsider its December 2009 Endangerment Finding. The Endangerment Finding forms the legal cornerstone of EPA’s recent greenhouse gas regulations, including newly-enacted emission limitations for cars and light trucks and large stationary sources. See EPA Issues Final Rule Regulating Greenhouse Gases From New and Modified Sources, Marten Law Environmental News (May 14, 2010).

If the legal challenges to this and EPA’s other recent greenhouse gas actions fail, the rules still could be preempted by federal climate legislation, or other legislative action. The potential for far-reaching greenhouse gas regulation by EPA under existing Clean Air Act programs has long been cited as an impetus for legislative action on climate change. Now that EPA has acted, it remains unclear what, if any response these actions will draw from the Congress. While not a clear gauge of its willingness to pass climate legislation, the Senate did recently block a disapproval resolution, sponsored by Senator Murkowski (R-AK) that would have nullified EPA’s Endangerment Finding.

I. The Endangerment Finding and EPA’s Authority to Regulate Greenhouse Gas Emissions

In December 2009, EPA published its final Endangerment Finding, which concluded that carbon dioxide and five other greenhouse gases “taken in combination endanger both the public health and the public welfare of current and future generations.”[1] See EPA’s Endangerment Finding Could Spur More NEPA, Nuisance Lawsuits, Marten Law Environmental News (Dec. 10, 2009). EPA’s consideration of whether greenhouse gases endanger public health and welfare was compelled by the U.S. Supreme Court’s 2007 decision in Massachusetts v. EPA, in which the Court held that carbon dioxide and other greenhouse gases fell within the Clean Air Act’s “sweeping” and “unambiguous” definition of “air pollutant.”[2]

At least ten petitions have been filed asking EPA to reconsider its Endangerment Finding. In addition, at least 17 petitions for review challenging the Endangerment Finding have been filed in the U.S. Court of Appeals for the District of Columbia Circuit by industry groups, a number of states, and thirteen House lawmakers. A coalition of 16 states and New York City has intervened on behalf of EPA. Challenges to the Endangerment Finding have been consolidated as Coalition for Responsible Regulation v. U.S. Environmental Protection Agency, Appeal No. 09-1322 (D.C. Cir.). The court’s June 18, 2010, Order, has held the appeal in abeyance until EPA completes its reconsideration proceedings or August 16, 2010, whichever comes first.

II. Mobile Source Standards

EPA’s positive Endangerment Finding compelled the agency to issue new mobile source emission standards. Consequently, on April 1, 2010, EPA and the National Highway Traffic Safety Administration (NHTSA) issued a joint rule that established the nation’s first standards for greenhouse gas emissions and set new corporate average fuel efficiency (CAFE) standards for new passenger vehicles and light trucks for model years 2012 to 2016.[3] The standards require new vehicles to meet an estimated combined average emissions level of 250 grams of carbon dioxide per mile, equivalent to 35.5 miles per gallon (MPG) if the automobile industry were to meet this carbon dioxide level solely through fuel economy improvements. EPA estimates that the new standards will cut greenhouse gas emissions by an estimated 960 million metric tons and oil consumption by 1.8 billion barrels over the lifetime of the vehicles sold under the program.

The new vehicle standards have been challenged in the U.S. Circuit Court of Appeals by a coalition of industry groups, while California and twelve other states have moved to intervene on behalf of EPA. One of the petitioners, the Southeastern Legal Foundation, has indicated that its challenges to the mobile source rules will also focus on the science underlying the endangerment finding.[4]

III. Stationary Source Standards

While EPA’s Endangerment Finding and tailpipe standards expressly address mobile source emissions, the Clean Air Act’s domino-like structure has compelled EPA to develop greenhouse gas emission regulations for stationary sources. The Clean Air Act’s Prevention of Significant Deterioration (PSD) program prohibits new or modified facilities that emit more than 100 or 250 tons a year (depending on source type) of “any air pollutant” from operating without a permit. Furthermore, facilities subject to PSD permitting requirements are required to use best available control technology (BACT) for each pollutant that is “subject to regulation” under the Act and emitted by the facility.[5]

Given the ubiquitous nature of greenhouse gas emissions, the literal application of these statutory thresholds would capture both large industrial sources such as power plants as well as myriad smaller sources that have never been regulated under the Clean Air Act, such as multi-family residential units, schools, and hospitals. Indeed, EPA has estimated that without its proposed “tailoring” rule discussed below, the number of facilities annually subject to BACT permits would increase from less than 300 per year to over 41,000 per year. The far-reaching implications of directly regulating greenhouse gases under the Clean Air Act has resulted in litigation over when greenhouse gases are “subject to regulation,” and has pushed EPA to limit the scope of its stationary source regulations for greenhouse gas emissions.

A. The Johnson Memorandum

Prior to the adoption of EPA’s vehicle emission standards, the issue of whether greenhouse gases are “subject to regulation” under the Clean Air Act was hotly contested. Environmental groups have argued that existing monitoring and reporting requirements under the Clean Air Act’s acid rain program made carbon dioxide “subject to regulation” for purposes of triggering BACT requirements. EPA, however, has consistently maintained its historical position that a pollutant does not become “subject to regulation” until some rule or statutory provision requires actual control of emissions of that pollutant.

The Obama Administration reiterated this stance on March 29, 2010, after reconsidering a Bush-era memo articulating the agency’s reasoning that had been issued by then-EPA Administrator Stephen Johnson.[6] The agency reaffirmed the “actual control” interpretation of the phrase “subject to regulation.” Thus, under EPA’s interpretation, a PSD permit must require BACT for each pollutant that is subject to some form of control under a provision of the Clean Air Act or a regulation issued under authority of the Act, and this requirement expands each time a new pollutant becomes subject to “actual controls.”

In its reconsideration of the Johnson Memo, EPA applied its “actual control” test to the question of when greenhouse gases would become “subject to regulation,” and so covered by the PSD program. The agency concluded that a pollutant becomes “subject to regulation” when controls on that pollutant take effect, meaning the date when the requirement to control the pollutant first applies to a source. EPA expressly rejected arguments that controls on a pollutant “take effect” on the date the regulation containing the controls is issued, or on the effective date of the regulation. If it had adopted either of these approaches, PSD permits issued immediately after the vehicle standards were published, or 60 days later when the regulation took effect, would have been required to include BACT for greenhouse gas emissions. Under EPA’s “actual control” interpretation, the greenhouse gas emission standards for cars and trucks, which apply to 2012 model year vehicles, “take effect” on January 2, 2011, as that is the first date a manufacturer could legally sell a 2012 model year vehicle. EPA’s affirmation of the Johnson Memo also has drawn legal challenges.

B. Greenhouse Gas Tailoring Rule

Applying the Johnson Memo’s reading of the Clean Air Act, the issuance of mobile source standards based on the Endangerment Finding automatically triggers construction and operating permit requirements for stationary sources. However, the Clean Air Act’s statutory thresholds (100 or 250 tons of any regulated air pollutant a year) would vastly expand the scope of Clean Air Act permitting when applied to greenhouse gases. To avoid that result, EPA published its final “tailoring rule” in May 2010, which limits the applicability of the PSD and Operating Permit programs with respect to greenhouse gases.[7]

The final tailoring rule established phased compliance beginning in January 2011 along with the mobile source rules. For the first six months of 2011, EPA has limited greenhouse gas permitting to sources already required to obtain a PSD or Title V Operating Permit due to their other air emissions. Those sources would only be required to address greenhouse gases in their permits if their emissions exceed 75,000 tons a year (for the PSD program, these would be new or increased greenhouse emissions). For two years after that, PSD and Operating Permits also would be required based only on a facility’s greenhouse gas emissions, even if not required due to emissions of other pollutants. EPA also committed in the rule to undertake another rulemaking, beginning in 2011, to consider whether to apply greenhouse gas permitting requirements to smaller sources. See EPA Issues Final Rule Regulating Greenhouse Gases From New and Modified Sources, Marten Law Environmental News (May 14, 2010).

EPA estimates that about 900 new and modified facilities a year will be required to obtain permits, mostly coal-fired plants, refineries, cement plants and solid waste landfills. EPA also plans to begin rulemaking in 2011 to consider whether to expand greenhouse gas permitting to sources emitting more than 50,000 tons per year, with the rule to be competed no later than July 1, 2012. EPA also has indicated it does not plan to require permits from smaller sources until at least April 30, 2016.

On June 3, 2010, the day EPA’s tailoring rule was published in the Federal Register, it was challenged by industry groups and 14 House lawmakers. Some industry groups challenging the tailoring rule are arguing that the 75,000 ton threshold is arbitrary and capricious because it will pick “winners and losers” by requiring some facilities to implement greenhouse gas controls, while sparing others.[8] Additional lawsuits are certain to be filed prior to the August 2, 2010, deadline for bringing such challenges.

Nature and Effect of Challenges to EPA’s Rules

Ten administrative petitions have been filed asking EPA to reconsider its Endangerment Finding, and dozens of lawsuits have been filed by industry groups, states, and lawmakers challenging the Endangerment Finding, EPA’s new mobile and stationary source rules, and EPA’s reconsideration of the Johnson Memo. The arguments raised in the petitions for reconsideration and lawsuits target the scientific underpinnings of the Endangerment Finding. In particular, they are likely to focus on electronic mail messages and documents by climatologists at the Climate Research Unit (CRU) at the University of East Anglia that were disclosed last year. Challengers contend that those correspondences cast doubt on the reliability of the data relied on by the International Panel on Climate Change (IPCC), the National Oceanic and Atmospheric Administration (NOAA), the National Aeronautics and Space Administration (NASA), and ultimately EPA.

EPA has indicated that it will issue its reconsideration of the Endangerment Finding by the end of July, but there has been no indication from the agency that it will alter its findings. Therefore, it is likely that the legal challenges to the Endangerment Finding will be revived later this summer, in any event no later than the August 16, 2010, deadline set by the D.C. Circuit. If petitioners succeed on the merits of their challenges, EPA’s authority to regulate greenhouse gas emissions under the Clean Air Act will be severely compromised and the vehicle standards and permitting requirements for stationary sources that it has put in place could be delayed or derailed.

Legislative challenges to EPA’s rules – particularly the requirement that stationary sources obtain permits for their greenhouse gas emissions – also are still being discussed. There may be a vote later this summer on a proposal to delay stationary source permitting for two years. And, while the prospects for comprehensive climate legislation remain at best uncertain, the Waxman-Markey bill passed by the House of Representatives in June 2009 and several proposals that have been floated in the Senate would preempt EPA’s authority to regulate greenhouse gas emissions from stationary sources under existing Clean Air Act programs.

But absent intervention by the courts or the Congress, EPA’s stationary source requirements are set to take effect January 2, 2011. PSD permits issued after that date will be required to include BACT controls on the largest new and modified sources of greenhouse gases, and the threat that EPA would act if Congress did not will have come to fruition.

For more information regarding EPA’s greenhouse gas regulations, challenges to those rules, or other climate change issues, please contact Dustin Till or any member of Marten Law’s Climate Change practice.