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Clean Air Act: U.S. Supreme Court to Tackle GHG Permitting and Cross-State Air Pollution in 2013 Term

October 16, 2013

Two controversial EPA air regulations will come before the United States Supreme Court this year, with potentially far-reaching implications for U.S. business. The Court this month granted a petition to review EPA’s determination that power plants and other major stationary sources must begin to control emissions of greenhouse gases (GHGs). Petitioners are challenging EPA’s determination in 2010 that GHGs fall within the Clean Air Act’s stationary source permitting program as a result of the Agency having adopted regulations limiting GHG emissions from cars and trucks.[1] The Court did not take up EPA’s authority to regulate GHG emissions under the Clean Air Act generally, and specifically turned down a petition challenging EPA’s finding that GHG emissions from cars and trucks endanger human health and welfare.[2] Instead, the central focus of the Court’s review will be EPA’s long-standing reading of the Act’s PSD permitting program for major sources as extending beyond so-called “criteria pollutants” to require limits on any pollutant “subject to regulation” by any part of the Act.

EPA’s GHG rules are not the only Clean Air Act issue the Court will consider in the current term. The Court previously agreed to review EPA’s long-litigated Cross-State Air Pollution Rule (CSAPR or Transport Rule).[3] EPA promulgated the Transport Rule to restrict emissions from upwind States that have an adverse effect on air quality in downwind States. The Transport Rule was meant to replace EPA’s initial 2005 Clean Air Interstate Rule (CAIR), which was struck down by the D.C. Circuit in 2008. The Supreme Court consolidated two cases involving the Transport Rule (EPA v. EME Homer City Generation and American Lung Association v. EME Homer City Generation) and has limited its review to the D.C. Circuit’s twin holdings that the Transport Rule impermissibly requires some upwind States to reduce their emissions by more than their own individual contribution to downwind State conditions, and that EPA unlawfully denied States the opportunity to implement their own SIPs in support of the Transport Rule. In addition, in its petition to the Court, EPA raised a threshold jurisdictional question, arguing that the challengers to the Transport Rule were barred from objecting to EPA’s manner of calculating each State’s good neighbor obligations at the D.C. Circuit level because they had not objected to this same process during EPA’s administrative proceedings.

Implications for the Court’s Term

The Court’s decision to add the GHG case to its docket, along with its previous decision to review the D.C. Circuit’s remand of the Transport Rule, significantly elevates the importance of this Supreme Court term for EPA’s Clean Air Act programs.

EPA’s challenged GHG rules were born out of the remand that followed the Supreme Court’s 2007 decision in Massachusetts v. EPA. In that case, the Court concluded that GHGs are an air pollutant that can be regulated under the Clean Air Act. This return trip before the Court is likely to further define the extent to which GHG emissions may be regulated under existing law. In one sense, the Court’s review of EPA’s authority over GHGs will be limited, since the Court declined to hear challenges to EPA’s Endangerment Finding, which provided the basis for limiting GHG emissions from new motor vehicles. Thus, the Endangerment Finding and the motor vehicle GHG standards will stand as affirmed by the D.C. Circuit.

Still, the case challenges the most significant step that the Obama administration has taken to date to regulate GHG emissions from stationary sources. Whether PSD and Title V permits must continue to incorporate BACT limits to control GHG emissions will depend on how the Court resolves this question. The implications of the GHG case also could extend well beyond climate concerns. The central issue in the case will be EPA’s decades-old interpretation of the scope of the Clean Air Act’s Prevention of Significant Deterioration (PSD) permitting program. The states all have their own analogue to the federal PSD program, so the case also has the potential to affect state regulation, not only of emissions of GHGs, but also of other non-criteria pollutants from stationary sources.

In contrast, the Transport Rule case has elements of equity between the states, the cooperative federalist structure of the Clean Air Act, and the practical difficulties of allocating emission reductions across half of the country. If the Supreme Court sides with the D.C. Circuit and sends EPA back to the drawing board – again – that would force EPA to search for a new mechanism for regulating cross-state pollution. If, on the other hand, the Supreme Court reverses the D.C. Circuit, that will allow EPA to put to rest a long-standing controversy, allowing it to shift its attention and resources to other air quality problems.

The Transport Rule case also has the potential to have broader impacts on EPA’s ability to lead under federal environmental laws – absent new federal legislation – when it comes to solving complex technical issues that have significant interstate dimensions. With problems like cross-state air pollution, where individual states have varying motivations for curbing their emissions depending on which way the wind blows, EPA has argued that a strong national focus is necessary.[4] In addition to offering an opportunity to level the playing field for States, EPA believes its approach in the Transport Rule allowed for the use of less expensive, more flexible solutions like cap-and-trade programs, instead of the imposition of more traditional command-and-control mechanisms to enforce state emission budgets.[5] EPA has argued that courts should defer to the agency’s specialized expertise when addressing such technical issues, but this deference rubs up against significant cooperative federalism concerns. A decision in this case that EPA went too far in asserting its federal role in cross-state air pollution could, absent new federal legislation, damper future efforts from EPA to lead from the national level, as opposed to through individual State plans.

Background on the GHG Cases

The Clean Air Act’s Prevention of Significant Deterioration (PSD) provisions largely focus on maintaining national ambient air quality standards (NAAQS).[6] There are six NAAQS pollutants, and they do not include carbon dioxide or the other GHG pollutants.[7] The PSD program applies to areas that are in “attainment” or “unclassifiable” for any of the NAAQS pollutants.[8] Under the PSD program, stationary sources that emit more than 100 or 250 tons per year (depending on source type) of “any air pollutant” must obtain PSD permits before beginning construction on or making major modifications to any “major emitting facility.”[9] Such facilities are also required to deploy Best Available Control Technology (BACT) for each pollutant emitted by the facility that is “subject to regulation” under the Clean Air Act.

In April 2007, a sharply divided Supreme Court held that carbon dioxide and other GHGs fell within the Clean Air Act’s “sweeping” and “unambiguous” definition of “air pollutant,” and remanded a rulemaking petition back to EPA with instructions to consider an endangerment finding.[10] EPA responded to that remand in December 2009, when it determined that GHG emissions from mobile sources endangered human health and welfare (the Endangerment Finding).[11] EPA and the National Highway Traffic Safety Administration (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.[12]

EPA also determined that the Tailpipe Rule, which went into effect on January 2, 2011, triggered permitting requirements for stationary sources under 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.[13] Literal application of the 100/250 ton statutory thresholds to GHGs would have vastly expanded the number of sources subject to PSD permitting. Therefore, EPA established much higher thresholds for GHGs. During an initial six month period, 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 exceeded 75,000 tons per year (for the PSD program, these would be new or increased GHG emissions). For two years after that, PSD and Operating Permits would also be required based only on a facility’s GHG 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).[14] In it, 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.”

The Challenge to the PSD Trigger

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.”[15] This interpretation was reaffirmed in EPA’s PSD regulations adopted in 1980 and 2002.[16] 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, they were “subject to regulation” for purposes of the PSD Program, and 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.

In the D.C. Circuit, the 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 D.C. Circuit 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.[17] Accordingly, the D.C. Circuit 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.”[18] 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 D.C. Circuit 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.[19] 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.[20] Ultimately the D.C. Circuit 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.[21]

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.[22]

The Transport Rule and the Clean Air Act’s “Good Neighbor” Provisions

The Clean Air Act establishes a cooperative framework under which EPA and the States work together to regulate air quality. At the federal level, EPA is required to establish NAAQS at levels which, “allowing an adequate margin of safety, are requisite to protect the public health.”[23] EPA is also obligated to designate areas of the country as “attainment,” “nonattainment,” or “unclassifiable” for each air pollutant, depending on whether the areas are in compliance with NAAQS.[24]

Once the EPA establishes NAAQS, it is the States who are primarily responsible for implementing these standards within their borders. States must develop and submit State Implementation Plans (SIPs) detailing how the State will reduce emissions in order to achieve and maintain compliance with the NAAQS.[25] States must submit SIPs to EPA within three years of each new or revised NAAQS.[26] In the event that a State does not timely submit a compliant SIP, EPA is charged with developing a Federal Implementation Plan (FIP) for that state.[27]

The D.C. Circuit’s EME Homer decision focused on the Clean Air Act’s “good neighbor” provision within this framework. The “good neighbor” provision requires “upwind” States ensure their SIPs will prohibit emissions from within their borders that “contribute significantly” to the nonattainment of, or interfere with the maintenance of, NAAQS in neighboring “downwind” States.[28]

In August 2011, EPA finalized the Transport Rule, establishing good neighbor obligations for upwind States and concurrently prescribing FIPs to implement those obligations. In this way, the Transport Rule departed from the standard progression from non-compliant SIP to imposition of a FIP, instead preemptively making findings of SIP submission failure and issuing FIPs for all affected States simultaneously with its issuance of the new good neighbor determinations. EPA made such a finding even though the States were not given the opportunity to first develop compliant SIPs. States could submit a SIP to EPA for approval that replaced or modified their FIP, but until States did so, the FIPs would remain effective.

EPA argued in the D.C. Circuit that there was no difference between the States’ compliance obligations with respect to NAAQS and their compliance obligations with respect to their good neighbor obligations. The D.C. Circuit rejected this distinction, explaining that the good neighbor obligations are “not clean numerical target[s]” and that an “upwind State’s obligation remains impossible for the upwind State to determine until EPA defines it.” Therefore the D.C. Circuit held that a SIP could not be deemed deficient for failing to meet the good neighbor obligation at the moment EPA has defined those obligations.[29] For more information on the Transport Rule or the D.C. Circuit’s decision, please see D.C. Circuit Strikes Down EPA Cross-State Air Pollutions Rules (Again), Marten Law Environmental News (Sept. 25, 2012).

For more information concerning the GHG and Transport Rule cases and other air quality matters, please contact any member of Marten Law’s Climate Change or Air Quality practice groups.

[1] On October 15, 2013, the Supreme Court granted cert. petitions and consolidated the greenhouse gas cases, docket nos. 12-1146, 12-1248, 12-1254, 12-1268, 12-1269 and 12-1272.

[2] On October 15, 2013, the Supreme Court denied cert. petitions by the State of Virginia and others advancing several challenges to the Endangerment Finding, docket nos. 12-1152, 12-1153 and 12-1253.

[3] The Supreme Court granted cert. petitions and consolidated two CSAPR cases, docket nos. 12-1182 and 12-1183.

[4] See Brief for the Federal Petitioners at 2-3, E.P.A. v. EME Homer City Generation, L.P., (Nos. 12-1182 and 12-1183).

[5] See id. at 12.

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

[8] 42 U.S.C. § 7471.

[9] 42 U.S.C. § 7475(a).

[10] Massachusetts v. E.P.A., 549 U.S. 497, 532, 127 S. Ct. 1438, 1462, 167 L. Ed. 2d 248 (2007).

[11] 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).

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

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

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

[15] 43 Fed. Reg. 26380, 26382 (June 19, 1978).

[16] See Coal. for Responsible Regulation, Inc. v. E.P.A., 684 F.3d 102, 115-16 (D.C. Cir. 2012).

[17] Id. at 131-32.

[18] Id. at 133.

[19] Id. at 137.

[20] Id. at 138-43.

[21] Id. at 136.

[22] Id.

[23] 42 U.S.C. § 7409(a)-(b).

[24] 42 U.S.C. § 7407(d).

[25] 42 U.S.C. § 7410(a).

[26] 42 U.S.C. § 7410(a)(1).

[27] 42 U.S.C. § 7410(c)(1).

[28] 42 U.S.C. § 7410(a)(2)(D). The good neighbor provision specifically provides, in relevant part, that each SIP must contain adequate provisions:

Prohibiting … any source or other type of emission activity within the State from emitting any air pollutant in amounts which will contribute significantly to nonattainment in, or interfere with maintenance by, any other State with respect to [NAAQS].

(emphasis added).

[29] EME Homer City Generation, L.P. v. E.P.A., 696 F.3d 7, 31 (D.C. Cir. 2012) cert. granted in part, 133 S. Ct. 2857 (U.S. 2013) and cert. granted in part, 133 S. Ct. 2857 (U.S. 2013).

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