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EPA’s Greenhouse Gas Regulations Upheld By Federal Court of Appeals

June 28, 2012

In a highly-anticipated opinion, the Environmental Protection Agency’s rules regulating greenhouse gas (GHG) emissions from major stationary sources and its determination that GHG emissions endanger public health and welfare by contributing to climate change were upheld by the D.C. Circuit Court of Appeals in an 82-page per curiam decision issued on June 26, 2012. Coalition for Responsible Regulation, Inc. v. EPA, No. 09-1322 (D.C. Cir. June 26, 2012). EPA’s rules require new major sources and major modifications to existing sources permitted after January 2, 2012 to implement the “best available control technology” (BACT) to limit GHG emissions. Opponents of the rules, including several states and industry trade associations, disputed EPA’s determination that anthropogenic emissions of GHGs are contributing to a global greenhouse effect, as well as EPA’s authority to regulate GHG emissions under the Clean Air Act based upon that finding. The D.C. Circuit was unpersuaded, holding that EPA’s “endangerment” finding was supported by the record, and the rules based upon the finding were compelled by requirements of the Clean Air Act and the U.S. Supreme Court’s decision in Massachusetts v. EPA.[1] The appellants are expected to take their challenge to the U.S. Supreme Court next, if the Court will hear it. Meanwhile, all new air permits for major sources will continue to require BACT for GHG emissions.

I. Background

The genesis of EPA’s GHG rules can be traced back to the Supreme Court’s 2007 opinion in Massachusetts v. EPA. That case involved a petition by twelve states and various environmental NGOs that asked EPA to regulate GHGs from cars and light trucks under section 202(a)(1) of the Clean Air Act. EPA denied the petition, concluding that it lacked the statutory authority to address global climate change under the Clean Air Act. EPA also contended that even if it did have statutory authority to regulate GHGs, doing so would be unwise given scientific uncertainty and political and foreign policy considerations. The original petitioners, joined by several states and local governments, appealed EPA’s denial of the petition to the Court of Appeals for the District of Columbia Circuit, which upheld EPA’s denial.[2]

In April 2007, a sharply divided Supreme Court held that EPA’s denial of the rulemaking petition was arbitrary and capricious. After determining that the petitioners had standing, the Court held that carbon dioxide and other GHGs fell within the Clean Air Act’s “sweeping” and “unambiguous” definition of “air pollutant.” While the Court acknowledged EPA’s “significant latitude as to the manner, timing, content, and coordination” of its rulemakings, the Court held that EPA’s “reasons for action or inaction must conform to the authorizing statute.” Thus, EPA acted arbitrarily and capriciously when it denied the rulemaking petition based on foreign relations and other policy considerations. The Court remanded the matter back to EPA with instructions to resolve “[t]he statutory question [of] whether sufficient information exists to make an endangerment finding.”

EPA responded to the Court’s remand in December 2009, when it determined that GHG emissions from mobile sources endangered human health and welfare (the Endangerment Finding).[3] EPA and NHTSA subsequently issued a joint rule (the Tailpipe Rule) that established the nation’s first standards for GHG emissions and set new corporate average fuel efficiency (CAFE) standards for new passenger vehicles and light trucks for model years 2011.[4] EPA subsequently denied petitions seeking reconsideration of the Endangerment Finding.[5]

Due to the Clean Air Act’s domino-like structure, the Tailpipe Rule, which went into effect on January 2, 2011, triggered permitting requirements for stationary sources under the Prevention of Significant Deterioration (PSD) program. Under the PSD program, new and modified facilities that emit more than 100 or 250 tons per year (depending on source type) of “any air pollutant” must obtain PSD permits. Such facilities are also required to deploy Best Available Control Technology (BACT) for each pollutant that is “subject to regulation” under the Clean Air Act and emitted by the facility. Since GHGs were regulated under EPA’s Tailpipe Rule, they were “subject to regulation” for purposes of the PSD program.

In May 2010, EPA finalized a rule (the Tailoring Rule) to “tailor” applicability of the PSD and Title V operating permit programs with respect to GHGs.[6] Literal application of the 100/250 ton statutory thresholds to GHGs would vastly expand the number of sources subject to PSD permitting. Therefore, EPA established much higher thresholds for GHGs. For the first six months of 2011, the Tailoring Rule limited GHG permitting to sources already required to obtain a PSD or Title V Operating Permit due to their other air emissions. Those sources were only required to address GHGs in their permits if their GHG emissions exceed 75,000 tons a year (for the PSD program, these would be new or increased GHG emissions). For two years after that, PSD and Operating Permits also would be required based only on a facility’s GHGs emissions, even if not required due to emissions of other pollutants. EPA also committed to undertake another rulemaking, beginning in 2011, to consider whether to apply greenhouse gas permitting requirements to smaller sources.

In March 2010, EPA also clarified precisely when pollutants would be “subject to regulation” and subject to BACT and other requirements under the PSD program. EPA has historically maintained that a pollutant does not become “subject to regulation” until some rule or statutory provision requires actual control (as opposed to monitoring) of emissions of that pollutant. In November 2008, however, the agency’s Environmental Appeals Board issued a ruling questioning the “actual control” interpretation and directing EPA to reconsider whether to impose a CO2 BACT limit on a proposed coal-fired power plant. Then-EPA Administrator Stephen Johnson quickly responded with a December, 2008 memo (the Johnson Memo) to the EPA Regional Administrators reaffirming that actual control requirements are needed to make a pollutant “subject to regulation.”

EPA issued its final decision on reconsideration of the Johnson Memo on March 29, 2010 (the Timing Rule).[7] The agency reaffirmed its “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.” Under EPA’s interpretation, the GHG 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.

A number of states and industry groups filed at least 80 petitions variously seeking review of all four components of EPA’s GHG regime – the Endangerment Finding, the Tailpipe Rule, the Tailoring Rule, and the Timing Rule. As detailed below, the D.C. Circuit dismissed all challenges.

II. Analysis

A. Challenges to the Endangerment Finding

The Petitioners raised numerous substantive and procedural challenges to EPA’s Endangerment Finding, all of which were rejected by the court.

1. Scientific Judgment v. Policy Considerations

The court first addressed arguments that EPA erred by restricting its finding to a scientific judgment devoid of policy concerns. More specifically, the Petitioners contended that, when making an endangerment determination, EPA is required to consider the benefits of GHG-emitting activities, the degree to which GHG emission regulations would be effective, and the potential for societal adaptation to, and mitigation of, climate change.

The court held that the Clean Air Act’s plain language foreclosed those arguments:

[Section] 202(a)(1) requires EPA to answer only two questions: whether particular “air pollution” – here, greenhouse gases – “may reasonably be anticipated to endanger public health or welfare,” and whether motor-vehicle emissions “cause, or contribute to” that endangerment.[8]

The court explained that those questions required a “scientific judgment” about the potential risks posed by GHG emissions, and not a policy discussion. The court also relied on Massachusetts v. EPA, noting that the Supreme Court had rejected EPA’s previous decision to decline to regulate GHGs under the Clean Air Act based upon policy considerations – “policy judgments … have nothing to do with whether greenhouse gas emissions contribute to climate change.”[9] The court concluded that “[t]he [Clean Air Act] speaks in terms of endangerment, not in terms of policy, and EPA has complied with the statute.”

The Petitioners also argued that, when interpreting section 202(a)(1), EPA should have considered the consequences that would follow a positive endangerment finding (i.e., triggering PSD and BACT requirements for stationary sources) in order to avoid “absurd” results. Again relying on the statute’s plain language, the court held that section 202(a)(1) “does not leave room for EPA to consider as part of the endangerment inquiry the stationary-source regulation triggered by an endangerment finding, even if the degree of regulation triggered might at a later stage be characterized as ‘absurd.’”[10]

 2. Adequacy of the Scientific Record

The court next addressed arguments challenging the adequacy of the scientific record underlying EPA’s Endangerment Finding, and assertions that there is significant scientific uncertainty surrounding climate change. The court rejected arguments that EPA erred by relying on assessments of climate change prepared by the Intergovernmental Panel on Climate Change (IPCC) and other scientific bodies. The court noted that those assessments were peer-reviewed and synthesized thousands of individual studies on various aspects of greenhouse gases and climate change. The court also rejected arguments that, by relying on assessments, EPA had delegated its judgment to the IPCC and others. The court observed that EPA did not delegate decisions-making authority; instead, it sought out and reviewed existing scientific evidence to determine whether a particular finding was warranted. As the court explained, “[t]his is how science works. EPA is not required to re-prove the existence of the atom every time it approaches a scientific question.”[11]

The Petitioners also argued that EPA erred in making the Endangerment Finding due to scientific uncertainty surrounding climate change. The court again cited to Massachusetts v. EPA, observing that the Supreme Court held that the existence of “some residual uncertainty” did not excuse EPA from declining to regulate GHGs. The court concluded that EPA’s decision was supported by substantial evidence and that the agency had taken the scientific record into account in a “rational manner.”

3. Quantification of Atmospheric Concentrations of GHGs

A number of Petitioners alleged that EPA acted arbitrarily and capriciously because it did not define, measure, or quantify either the atmospheric concentrations at which GHGs endanger public health or welfare, or the risks or impacts of climate change. According to the Petitioners, EPA’s failure to define “safe” levels of GHG concentrations demonstrated that the Endangerment Finding was simply EPA’s “subjective conviction.” The court rejected those arguments, holding that the plain language of section 202(a)(1) does not require EPA to establish a precise numeric value in its endangerment finding. Rather, the court explained, section 202(a)(1) requires EPA to take a case-by-case, sliding-scale approach to endangerment: “[EPA] may base an endangerment finding on ‘a lesser risk of greater harm … or a greater risk of lesser harm’ or any combination in between.”[12] The court went on to explain that EPA’s “failure to distill this ocean of evidence into a specific number at which [GHGs] cause ‘dangerous’ climate change is a function of the precautionary thrust of the [Clean Air Act] and the multivariate and sometimes uncertain nature of climate science, not a sign of arbitrary and capricious decision-making.”[13]

4. Denial of Petitions Seeking Reconsideration of Endangerment Finding

The court next addressed allegations that EPA erred by denying petitions seeking reconsideration of the Endangerment Finding based on internal documents and emails obtained from the University of East Angola Climate Research Unit (CRU) that purportedly undermined the scientific evidence upon which EPA relied. Under the Clean Air Act, EPA is required to reconsider a rule if: (1) the party raising an objection can demonstrate that it was impracticable to raise such an objection during the public comment period; and (2) the objection is “of central relevance to the outcome of the rule.”[14] An objection has “central relevance” if it “provides substantial support for the argument that the regulation should be revised.”[15]

The court found that Petitioners failed to provide “substantial support” for their arguments that the Endangerment Finding should be revised. The court rejected arguments that some studies the IPCC referenced in its assessments had not been peer-reviewed, noting that such assessments relied on over 18,000 studies that had been peer-reviewed. The court also observed that the Petitioners had failed to uncover a “pattern” of flawed science. Two of the errors in IPCC reports identified by the Petitioners were, according to the court, harmless because EPA did not actually rely on such errors in making the Endangerment Finding.[16] The court also rejected arguments that new studies contradicted certain projections concerning storm frequency relied upon by EPA. The court, however, rejected those arguments, noting that EPA considered those studies, and found them consistent with the Endangerment Finding, when denying the petition for rehearing.

B. Challenges to the Tailpipe Rule

The Petitions consolidated in this action did not directly object to the vehicle emission standards contained in the Tailpipe Rule. Instead, the Petitioners focused on the impact that adopting the Tailpipe Rule had on permitting for stationary sources. They argued that, as part of its analysis of proposed vehicle emission standards, EPA should have considered the cost of stationary source permitting requirements that would be triggered by the Tailpipe Rule. Petitioners argued that acknowledgement of the resulting stationary source costs would have forced EPA to exclude CO2 from the regulated GHGs, decline to issue GHG standards at all, or interpret the rule so as not to trigger stationary source permitting. [17] The court rejected their arguments, responded that once EPA had made the Endangerment Finding, section 202(a)(1) of the Act imposed a non-discretionary duty on EPA to adopt regulations applicable vehicle GHG emissions. [18] The D.C. Circuit concluded this reading of 202(a)(1) was “compelled” by the Supreme Court’s decision in Massachusetts v. EPA. [19]

Petitioners also argued that EPA’s vehicle emission standards were deficient under the Administrative Procedures Act because EPA had failed to show that the Tailpipe Rule would “meaningfully mitigate” the risk that had been identified in the Endangerment Finding. [20] The court said that this argument rested on a misreading of earlier D.C. Circuit decisions on EPA air regulations, and that there was no requirement that the regulation achieve a particular level of mitigation. EPA was only required to show that the rule would make a significant contribution toward mitigation, and the court found that the administrative record showed that the Tailpipe Rule would contribute “meaningful” mitigation of GHG emissions. [21]

Finally, the court rejected an argument that, in evaluating the cost of compliance with the new emission standards, as required by Section 202(a)(2) of the Act, EPA should have considered the cost of stationary source permitting that would flow from adoption of the Tailoring Rule. The Court held that, under earlier D.C. Circuit holdings, 202(a)(2) encompasses only the cost to the motor-vehicle industry, and does not mandate consideration of costs to other entities not directly subject to the proposed tailpipe emission standards. [22]

C. Challenge to EPA’s Interpretation of the scope of PSD Permitting

1. The PSD Program and its Application to GHG Emissions

The Clean Air Act’s Prevention of Significant Deterioration (PSD) provisions largely focus on maintaining national ambient air quality standards (NAAQS).[23] There are six NAAQS pollutants, and they do not include carbon dioxide or the other greenhouse gas pollutants.[24] The PSD program applies to areas that are in “attainment” or “unclassifiable” for any of the NAAQS pollutants.[25]

Section 165 of the Clean Air Act requires that a permit be obtained before constructing or making major modifications to any “major emitting facility.”[26] To obtain a PSD permit, a covered source must, among other things, install BACT “for each pollutant subject to regulation under” the Act.[27] Section 169(1) defines “major emitting facility” as a stationary source which emits either 100 tons (for certain listed source categories) or 250 tons per year of “any air pollutant.”[28]

Since 1978, in defining what constitutes a “major source” for purposes of PSD permitting, EPA has construed “any air pollutant” to mean “any air pollutant regulated under the Clean Air Act.”[29] This interpretation was reaffirmed in EPA’s PSD regulations adopted in 1980 and 2002.[30] Thus, under EPA’s long-standing interpretation of the Act, a PSD permit is required for sources that will emit more than the PSD threshold of any regulated air pollutant, not just a NAAQS pollutant. As a result, EPA concluded that when GHGs became a regulated pollutant under the Tailpipe Rule, emissions of more than 100 or 250 tons per year of GHGs (depending on the source type) would trigger the need for a PSD permit.

2. Challenge to PSD Trigger

Petitioners tried to strike at the link between the Tailpipe Rule and the regulation of stationary sources by challenging EPA’s position that PSD could be triggered by emissions of any regulated air pollutant, and not just emissions of NAAQS pollutants. Since EPA first adopted this construction of the Clean Air Act in 1978 and the Act requires any challenges to EPA air regulations be brought within 60 days of their final adoption, the court first had to consider whether this claim was time barred. The court concluded that two of the Petitioner trade associations – National Association of Home Builders and National Oilseed Processing Association – represented members who never were subject to the PSD program until the Tailpipe Rule was adopted, and so had newly ripened claims that met an exception to the time limit on rule challenges.[31] Accordingly, the court considered the merits of the petitioners’ arguments regarding the PSD trigger.

EPA argued that its expansive reading of what constitutes a “major source” is compelled by the Clean Air Act’s use of the term “any air pollutant” in its definition of “major emitting facility.”[32] The industry challengers maintained that the Clean Air Act supports a more circumscribed definition of major source. They argued that the PSD program is intended to be geographically distinct, and so PSD only should apply to air pollutants with localized effects –which admittedly would not include GHGs. The court rejected this argument based on the requirement in Section 165(a)(4) that BACT is required for “each pollutant subject to regulation” under the Act. [33] The court also rejected arguments that pointed to PSD provisions applicable to NAAQS pollutants, which the petitioners argued were an indication of Congressional intent to limit PSD to NAAQS. The Court ruled those provisions inapplicable, since EPA has not classified GHGs as NAAQS, and held that those provisions also did not alter its reading of the PSD permitting provisions in Section 165.[34] Ultimately the court agreed with EPA that its reading of “any air pollutant” to mean “any pollutant regulated under the Clean Air Act” was compelled by the language of the statute.[35]

The inclusion of GHG permit conditions in PSD permits also brings GHG requirements into the Clean Air Act’s Title V Air Operating Permit program. While the Petitioners disputed EPA regulations that require GHG provisions in Title V permits, the court noted that none of their challenges to EPA’s interpretation of the Clean Air Act’s permitting triggers were relevant to the Title V program. Accordingly, the court concluded that Petitioners had forfeited any challenge to EPA’s GHG-inclusive interpretation of Title V.[36]

D. Challenges to Tailoring Rule and Timing Rule

Having concluded that the Clean Air Act requires PSD and Title V permits for major emitters of GHGs, the D.C. Circuit turned to the Petitioners’ challenge to the two rules that EPA adopted to mitigate the impact of this new permitting requirement on GHG sources: the Tailoring Rule and the Timing Rule. The court disposed of the petitioners’ challenges to these rules in short order, concluding that none of them had standing because they suffered no injury from these rules.[37]

The court noted that none of the Petitioners had made any real arguments against the Timing Rule, which determined that GHGs became regulated air pollutants effective when the Tailpipe Rule went into effect on January 2, 2011.[38] It also suggested that vacating the rule would have little effect, but did not explore the issue since it concluded Petitioners had no standing to challenge the rule.[39]

Regarding the Tailoring Rule, the court focused on the purpose of the rule, which was to reduce what would otherwise be an overwhelming permitting burden if all sources emitting more than 100/250 tons of GHGs were required to obtain PSD permits.[40] After noting that the Petitioners disputed the three doctrines EPA offered as justifying the Tailoring Rule, the court turned to the question of Petitioners’ standing. The court concluded that the Petitioners had failed to identify any “injury in fact” that they suffered as a result of either the Tailoring Rule or the Timing Rule, let alone an injury that would be redressed by vacatur of the rules.[41] It further concluded that the rules mitigate the Petitioners’ claimed injuries, and that arguments from the State Petitioners seeking to overcome this problem – for example, that in the absence of the Tailoring Rule, Congress would be compelled to adopt corrective legislation that would avoid the permitting requirement entirely – were too speculative to justify standing.[42]

III. Conclusion

The D.C Circuit rejected the Petitioners’ challenges to EPA’s Endangerment Finding and its GHG regulations based mainly on the Court’s reading of the plain language of the Clean Air Act and the Supreme Court’s decision in Massachusetts v. EPA. An appeal to the Supreme Court is likely. But unless the Supreme Court reverses, or Congress intervenes to limit EPA’s Clean Air Act authority, EPA’s GHG regulations remain in place and PSD and Title V permits must continue to incorporate BACT limits to control GHG emissions.

For more information about GHGs and air permitting, please contact any member of Marten Law’s Climate Change or Air Quality Practice Groups.

[1] 549 U.S. 497 (2007)

[2] 433 F.3d 66 (D.C. Cir. 2005).

[3] Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act; Final Rule, 74 Fed. Reg. 66496 (Dec. 15, 2009).

[4] Light-Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel Economy Standards; Final Rule, 75 Fed. Reg. 25324 (May 15, 2010).

[5] EPA’s Denial of the Petitions To Reconsider the Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act; Final Rule, 75 Fed. Reg. 49556 (Aug. 13, 2010).

[6] Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule; Final Rule, 75 Fed. Reg. 31514 (June 3, 2010).

[7] Reconsideration of Interpretation of Regulations That Determine Pollutants Covered by Clean Air Act Permitting Programs, 75 Fed. Reg. 17004 (April 2, 2010).

[8] Slip Op. at 23.

[9] Slip Op. at 24, quoting Massachusetts v. EPA, 549 U.S. at 533.

[10] Slip Op. at 26.

[11] Slip Op. at 27.

[12] Slip Op. at 33, quoting Ethyl Corp. v. EPA, 541 F.2d 1, 18 (D.C. Cir. 1976).

[13] Slip Op. at 34.

[14] 42 U.S.C. § 7607(d)(7)(B).

[15] Reconsideration Denial, 75 Fed. Reg. 49,561.

[16] The two misstatements identified by the Petitioners were: (1) a misstatement of the area of the Netherlands that existed below sea level (which was subsequently corrected by the IPCC), and (2) a misstatement concerning the rate at which Himalayan glaciers are receding.

[17] Slip Op. at 40.

[18] Id.

[19] Slip Op. at 41.

[20] Slip Op. at 41.

[21] Slip Op. at 43.

[22] Slip Op. at 44 (citing Motor & Equip. Mfrs. Ass’n, Inc. v. EPA, 627 F.2d 1095, 1118 (1979).

[23] See Clean Air Act Title I, Part C.

[24] See EPA, National Ambient Air Quality Standards, www.epa.gov/air/criteria.html.

[25] 42 U.S.C. § 7471.

[26] 42 U.S.C. § 7475(a).

[27] 42 U.S.C. § 7475(a)(4).

[28] 42 U.S.C. § 7479(1).

[29] 43 Fed. Reg. 26380, 26382 (June 19, 1978).

[30] See Slip Op. at 45-46.

[31] Slip Op. at 47-50.

[32] Slip Op. at 53.

[33] Slip Op. at 60.

[34] Slip Op. at 62-72.

[35] Slip Op. at 57.

[36] Slip Op. at 59.

[37] Slip Op. at 73-81.

[38] Slip Op. at 73.

[39] Slip Op. at 74.

[40] See Slip Op. at 74.

[41] Slip Op. at 77.

[42] Slip Op. at 77-79.

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