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EPA Expected to Issue Series of New and Revised Air Rules Before Year-End

November 19, 2012

Now that the election is over, EPA is expected to begin moving forward a crowded air docket, including greenhouse gas standards for utilities and refineries, updates to ambient air quality standards for particulate matter and ozone, and several rules that are being rewritten in response to legal challenges. Utilities, refineries, and operators of industrial boilers will all face new requirements specific to their source categories, as well as potential for further constraints due to more stringent, generally applicable ambient air quality standards. Final action on the first of these rules is expected before the end of 2012.

Revised Boiler MACT Standard

EPA is expected to soon release revisions to its control standards for hazardous air emissions from industrial boilers and process heaters. This rule was adopted in 2011 under requirements of the 1990 amendments to the Clean Air Act, which rewrote Section 112[1] to require EPA to make a list of sources of hazardous air pollutants, by category. Section 112 directed EPA to collect information on the best performing sources in each category and to determine the “maximum achievable control technology” (MACT) for each category’s new and existing sources. It set an aggressive schedule for these new rules, requiring EPA to adopt emissions standards for all of the source categories on the initial list within 10 years.[2] Section 112 also authorizes EPA to add additional source categories to the list, and requires that standards for newly-added categories be completed within two years.[3] Over the last twenty years, EPA has adopted more than 100 MACT standards.[4]

In March 2011, EPA adopted a MACT standard for new and existing large industrial boilers and process heaters, setting limits on emissions of mercury, dioxin, particulate matter, hydrogen chloride and carbon monoxide, applicable to boilers burning coal, fuel oil, natural gas, or biomass.[5] Across the country, the rule applies to about 14,000 boilers and heaters at refineries, pulp and lumber mills, smelters, chemical manufacturers, auto and machine parts makers, glass makers, and other industrial operations, as well as large institutional facilities, like universities and hospitals. The rule also set limits on mercury and carbon dioxide emissions from smaller boilers, but only if they burn coal.

The March 2011 version of Boiler MACT was just the latest attempt by EPA to set standards for emissions of hazardous air pollutants from industrial boilers and process heaters. EPA adopted a MACT standard for this source category in 2004,[6] which was struck down by the courts in 2007.[7]

The 2011 version of Boiler MACT proved just as controversial, and EPA responded to that controversy immediately. In the same Federal Register issue in which the final version of the rule was published, EPA also announced that it intended to reconsider fourteen specific issues related to the rule, and to take additional comment on those issues.[8] EPA received dozens of petitions to reconsider various aspects of the rule, and it was challenged in court. EPA’s reconsideration of the rule is now drawing to a close, and the Agency is expected to issue its final revisions to the rule before the end of the year. Further legal challenges almost certainly will follow.

In December 2011, EPA issued proposed changes to the Boiler MACT rule and invited comment on whether it should further revise a number of provisions of the rule, including whether several emission limits should be changed based on newly-provided data, whether EPA should draw additional distinctions between different types of boilers, whether to change certain tune up and work practice requirements, and whether to revise monitoring requirements.[9] After considering further comments, EPA sent its final rule revisions to the White House for review last May. Clearance to issue the final rule is expected before the end of the year.

New Source Performance Standards for Power Plants and Refineries

EPA will also continue to develop two new rules addressing greenhouse gas emissions from power plants and petroleum refineries under the Clean Air Act’s New Source Performance Standards (NSPS) program. Under the NSPS program, EPA is required to establish performance standards for various categories of new and modified stationary sources.[10] For each source category, the performance standard must reflect “the degree of emission limitation achievable through the application of the best system of emission reduction which (taking into account the cost of achieving such reduction and environmental impact and energy requirements) [EPA] determines has been adequately demonstrated.”[11] The standard is sometimes referred to as Best Demonstrated Technology (BDT).

In December 2010, EPA settled two lawsuits which challenged EPA’s decision to not set NSPS for greenhouse gas emissions from power plants and petroleum refineries. The settlements required EPA to propose and finalize the power plant and refinery rules by 2010 and 2012, respectively. EPA, however, has not yet completed those rulemakings. EPA proposed the NSPS for power plants in April 2012. The proposed rule would require coal- and natural gas-fired power plants to emit no more than 1,000 pounds per megawatt-hour of carbon dioxide – a standard that would effectively prohibit the construction of new coat-fired power plants unless they deploy carbon capture and sequestration (CCS) technology. The rule, however, does have a narrow “alternative compliance option” that would permit the construction of new coal-fired power plants so long as they agreed to subsequently deploy CCS technology such that the facility achieved the 1,000 pounds per megawatt-hour standard, on average, over its first 30 years of operations. The NSPS would not apply to power plants combusting other fuels (e.g., biomass) and would not apply to existing power plants (although EPA has historically applied NSPS standards to existing sources). EPA is expected to finalize the power plant NSPS rule in the coming year.

While the power plant NSPS is not yet final, it has nonetheless been challenged in federal court.[12] The Clean Air Act defines a “new source” as a source that has not yet begun construction by the date of a proposed NSPS rule, which in the case of the power plant NSPS is April 13, 2012. The petitioners in Las Brisas v. EPA argue that the proposed rule is ripe for judicial review, despite its draft status, because it imposes legally-binding requirements on proposed power plants that did not begin construction before April 13, 2012, even if EPA chooses not to finalize the rule. The petitioners also argue that EPA unlawfully combined two source categories (coal- and natural gas-fired power plants) into a single source category for purposes of greenhouse gas emissions, and set the performance standard for both types of power plants based solely on BDT for natural gas-fired plants.

The timing on the NSPS rules for refineries is less certain. While the settlement required EPA to finalize the refinery NSPS by the end of, EPA has not publically committed to a timeline for issuing a draft for public comment. In March 2012, EPA Administrator Lisa Jackson informed the House Energy and Commerce Committee that there were “no current rules under development on that issue.” Furthermore, the White House Office of Management and Budget (OMB) is currently reviewing a proposed rule evaluating the adequacy of refinery NSPS for traditional air toxics, but that rule reportedly does not include greenhouse gases. In the coming year, it is likely that either EPA will issue a NSPS for refinery greenhouse gases, or the Sierra Club and other plaintiffs involved in the settlement will seek to compel EPA to comply with the settlement’s terms. In either event, refineries will likely be subject to new greenhouse gas requirements by the end of President Obama’s second term.

Mercury and Air Toxics Standards for Power Plants

In December 2011, EPA finalized a controversial new rule – referred to as the Mercury and Air Toxics Rule (MATS) or Utility MACT – designed to reduce the emission of mercury and other toxic air pollutants from coal- and oil-fired power plants. EPA, however, subsequently agreed to reconsider the rule. Like Boiler MACT, this rule arises under section 112 of the Clean Air Act. The reconsideration process should be completed by March 2013.

EPA’s Utility MACT standard set aggressive numeric emissions limits for mercury, filterable particulate matter (as a surrogate for toxic metals), and hydrogen chloride (as a surrogate for acid gases). Coal-fired plants subject to the new rules generate about 45 percent of the nation’s electric power, and make up a higher percentage in some regions. The rules also apply to oil-fired plants, which generate about 1 percent of the nation’s electricity. EPA claims the new rules will reduce mercury emissions by 90 percent, acid gas emissions by 88 percent, and cut SO2 another 41 percent beyond reductions expected under the Cross State Air Pollution Rule.[13] EPA estimates the health benefits of the resulting air quality improvements are worth $37 billion to $90 billion a year.[14]

In the final Utility MACT rule, EPA declined to extend the statutory three-year compliance period (which state permitting agencies may extend for an additional fourth year). Utilities, in response, strenuously argued that the rule provided insufficient time for compliance, and that the reliability of the electric system would be threatened because utilities would be required to close, replace, or modify the 1,400 generating units affected by the rule.

In July 2012, EPA agreed to reconsider the Utility MACT rule. A number of parties had asked EPA to reconsider the rule, particularly the mercury standards, on grounds that current technology cannot continuously monitor mercury concentrations so low, which would arguably prevent new coal-fired power plants from being built. Gina McCarthy, EPA assistant administrator for air and radiation, said in a July 20 letter granting reconsideration that EPA wants to ensure the standards for new sources are “achievable and measurable.” EPA has committed to complete its reconsideration by March 2013. In light of its decision to reconsider aspects of the Utility MACT rule, EPA temporarily stayed the rule for three months.

A number of utilities and 20 states have challenged provisions of the Utility MACT, arguing that the rule was not “appropriate and necessary” and that EPA should have considered the rule’s potential reliability impacts. The rule has also been challenged by environmental NGOs who argue that EPA should impose stricter standards in order to protect public health. In June 2012, the U.S. Court of Appeals for the District of Columbia granted a motion to sever and expedite filed by petitioners who are developing new power plants. Those petitioners argued that any delay in resolving challenges to those aspects of the Utility MACT rule that apply to new facilities would render their projects unviable. At EPA’s behest, the court recently ruled that it would hold the new developers’ severed challenge in abeyance while EPA reconsiders the Utility MACT rule.

Cross State Air Pollution Rule

EPA’s efforts to regulate the interstate transport of air pollution from power plants also remain in flux. In August 2012, the D.C. Circuit rejected EPA’s Cross State Air Pollution Rule (CSAPR or Transport Rule), which restricted air emissions from power plants in “upwind” states that resulted in air quality exceedances in “downwind” states. See D.C. Circuit Strikes Down EPA Cross-State Air Pollution Rules (Again), Marten Law Environmental News (Sept. 25, 2012). The Transport Rule was drafted to fix deficiencies in a 2005 rule (the Clean Air Interstate Rule or CAIR) that was struck down by the same court in 2008.[15] The court found that the Transport Rule contained flaws similar to those in CAIR – namely, that the rule would, based on cost considerations, require certain upwind states to reduce in-state emissions by more than the amount of their actual contribution to air quality exceedances in downwind states. The court also rejected EPA’s decision to impose federal compliance plans (federal implementation plans or FIPS) on the states without first providing the states with an opportunity to develop state-level compliance plans (state implementation plans or SIPs).

The court vacated the Transport Rule and remanded the matter back to EPA. In the meantime, the court instructed EPA to continue implementing CAIR while the agency develops a replacement rule. Last month, EPA filed a petition for rehearing en banc, arguing that:

The panel’s decision upends the appropriate relationship of the judicial, legislative, and executive branches of government by rewriting clear legislation, ignoring explicit statutory jurisdictional limits, and stepping into the realm of matters reserved by Congress and the courts to the technical expertise of administrative agencies. Especially in light of the enormous public health and regulatory significance of the Transport Rule, these clearly are issues of ‘exceptional importance.’

The time period for seeking Supreme Court review will not begin to run until the court resolves EPA’s request for reconsideration.

Updating Ambient Standards for Particulates

Diesel engines and other combustion sources (which power not only motor vehicles, industrial facilities and electric power plants, but also wood stoves) are the main sources of soot and other fine particles in the ambient air. EPA classifies these pollutants as fine particulate matter, commonly referred to as PM-2.5, meaning particulate matter smaller than 2.5 microns.

On June 29, 2012, EPA proposed lowering the annual ambient air quality standard for PM-2.5 to a level between 12 and 13 micrograms per cubic meter (ug/m3).[16] The current annual standard of 15 ug/m3 has been in place since 1997. EPA proposed to leave the existing 24-hour standard of 35 ug/m3 unchanged. EPA also invited comment on whether annual standard should be lowered further, to 11 ug/m3. The Agency is under a court-ordered deadline to finalize the PM-2.5 standards by December 14, 2012 (the Clean Air Act requires EPA to review ambient standards at least every five years).

EPA estimates that implementing a lower PM-2.5 standard will cost $69 million, if the standard is set at 12 ug/m3, and $2.9 million if it is set at 13 ug/m3.[17] These figures do not include the cost of implementing several recently-adopted clean air rules that will reduce particulate emissions from power plants (such as the Utility MACT rule discussed above) and that require cleaner diesel fuel and cleaner burning diesel engines, which EPA considered part of the baseline case reflecting existing conditions. However, the contribution those rules will make toward lowering ambient particulate levels was taken into account as part of the baseline, in determining the additional investment that will be needed to achieve the proposed ambient standards.

There is concern in industry that a lower PM-2.5 ambient standard will, nonetheless, have an impact on regulated sources, when combined with the rules discussed in this article as well as other rules EPA has adopted in the last four years. For example, many parts of the country are experiencing their first significant oil and gas exploratory activity in many decades, due to the advent of shale gas. Most exploratory operations are powered by diesel engines. More stringent ambient PM-2.5 standards could prove to impose a constraint on the number drilling operations that can be allowed in certain regions, particularly near urbanized areas and industrial facilities that already have elevated ambient concentrations of fine particulates.

Updating Ambient Standards for Ozone

In September, 2011, EPA submitted a proposed rule to OMB that would make the ambient air quality standard for ozone more stringent. After fairly intense lobbying from the business community, President Obama sent the standard back to EPA and told the Agency to update its review of the relevant science and come back to him with an updated proposal in two years.[18] See S. Brandt-Erichsen, Obama Administration Withdraws Proposed Ozone Standard, Marten Law News (Sept. 6, 2011). EPA has since been conducting its science review, and is expected to begin moving forward with an update to the ozone ambient standard in 2013, although final adoption may not occur until 2014.

Ozone is the primary constituent of smog. Sunlight and hot weather cause ozone to form in the lower atmosphere through a chemical reaction between nitrogen oxides and volatile organic compounds. The burning of hydrocarbons – as fuel for cars, power plants, and industrial facilities – is the most significant source of these precursors to ozone. The same pollutants that produce ozone also can contribute to formation of PM-2.5.

EPA’s 2011 ozone proposal was itself a response to litigation over the Bush administration’s 2008 action on the ozone standard. The Bush administration adopted a standard of 75 parts per billion (ppb) (the standard had been 84 ppb in the 1990s). Somewhat after the President directed EPA to withdraw its 2011 proposal, the Agency revealed that it had been prepared to adopt a standard of 70 ppb.[19]

The American Lung Association and several environmental groups have pressed EPA to adopt an even lower standard (in the range of 60 ppb), while business and industry groups, which have argued for retaining the Bush-era 75 ppb standard. While the Clean Air Act does not allow consideration of the cost of implementation in selecting ambient air quality standards, business lobbies have argued – based on EPA estimates – that about 85 percent of the country would be out of compliance with a 60 ppb standard, and achieving that standard would cost between $52 billion and $90 billion annually by 2020.[20]

Conclusion

During President Obama’s first term, EPA’s air program carried out an ambitious regulatory agenda, including but limited to adopting the first regulation of greenhouse gas emissions under the Clean Air Act. As the President prepares for his second term, EPA is working to overcome objections to some of the rules adopted during the first term, complete long-promised action on other rules, and respond to the Clean Air Act’s direction to review and update ambient air quality standards every five years. It is a full agenda, and certainly not without controversy. As with the air rules finalized during the first term, these rules also have the potential to have widespread and significant impacts on the electric power sector and America’s industries.

For more information, please contact Svend Brandt-Erichsen or any other member of Marten Law’s Air Quality practice group.

[1] 42 U.S.C. § 7412.

[2] Id. at §7412(e)(1).

[3] Id. at §7412(c)(5).

[4] See 40 CFR Part 63.

[5] 76 Fed. Reg. 15,608 (March 21, 2011).

[6] 69 Fed. Reg. 55,218 (Sept. 13, 2004).

[7] NRDC v. EPA, 489 F.3d 1250, 1257-61 (D.C. Cir. 2007).

[8] 76 Fed. Reg. 15,249 (March 21, 2011).

[9] 76 Fed. Reg. 80,598 (Dec. 23, 2011).

[10] 42 U.S.C. § 7411.

[11] 42 U.S.C. § 7411(a).

[12] Las Brisas Energy Center v. EPA, No. 12-1248 (D.C. Cir.).

[13] EPA Fact Sheet: Benefits and Costs of Cleaning Up Toxic Air Pollution From Power Plants (Dec. 21, 2011).

[14] Id.

[15] North Carolina v. U.S.E.P.A., 531 F.3d 896, 929 (D.C. Cir. 2008).

[16] 77 Fed. Reg. 38,890 (June 29, 2012).

[17] EPA, Regulatory Impact Analysis for the Proposed Revisions to the National Ambient Air Quality Standards for Particulate Matter (June 2012).

[18] See The White House, Statement of the President on the Ozone National Ambient Air Quality Standard (September 2, 2011).

[19] EPA, OMB Review Draft Federal Register Preamble for Final Ozone Standard (July 2011).

[20] Business Roundtable, EPA Ozone Standard Map (undated).

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