EPA Issues Final GHG Emission Rules for Vehicles and Stationary Sources

May 8, 2010
Client Alert Newsletter May 2010

Despite the provisions in the recently released American Power Act (and other pending legislation) that would strip the U.S. Environmental Protection Agency ("EPA") of its ability to regulate greenhouse gases ("GHGs") under its current Clean Air Act authority, EPA has continued to move forward to propose and finalize a number of GHG regulations. At the beginning of April, EPA and the National Highway Traffic Safety Administration ("NHTSA") issued a final rule establishing a carbon dioxide standard for new cars and light trucks starting with the 2012 model year. The final rule was a compromise among EPA, the automobile industry, California, and environmental groups as part of EPA's efforts to address its obligations in the wake of the 2007 Supreme Court decision in Massachusetts v. EPA. At about the same time, EPA issued a decision on its reconsideration of the "Johnson Memorandum". The Johnson Memorandum addressed when air pollutants become "subject to regulation" for purposes of triggering the Clean Air Act's Prevention of Significant Deterioration ("PSD") and Title V programs, which require permits and control technology for major stationary sources. In a somewhat surprising move, EPA decided an air pollutant does not become "subject to regulation" until actual compliance with a regulation requiring actual control is required, rather than when the rule is promulgated. Thus, for purposes of the final motor vehicle rule, GHGs do not become "subject to regulation", triggering PSD and Title V applicability, until the carbon dioxide control requirements kick in starting with the 2012 model year.

EPA's reconsideration of the Johnson Memorandum paved the way for EPA to provide additional flexibility with respect to the final GHG "Tailoring Rule" that EPA issued on May 13. This rule "tailors" the applicable GHG thresholds for PSD and Title V applicability from the 250 and 100 ton thresholds currently in the Clean Air Act in an attempt to limit the number of "major" sources that would otherwise be subject to these permitting programs if these thresholds were applied to GHG emissions. The final Tailoring Rule phases in PSD and Title V permitting requirements for GHG stationary sources in two steps. First, from January 2011 through June 2011, only sources already subject to PSD or Title V permitting requirements would be considered major sources subject to Title V or PSD requirements for their GHG emissions. Furthermore, only projects that result in increases of 75,000 tons per year of GHG emissions (measured as CO2 equivalent or "CO2e") would be considered "significant" thereby requiring emitters to determine and implement Best Available Control Technology ("BACT") for their GHG emissions. In step two, which starts July 2011 and extends through June 2013, sources that emit greater than 100,000 tons per year of GHGs would be considered "major" for purposes of the Title V and PSD programs, even if they would not otherwise be subject to these programs due to emissions from other pollutants. And modifications at these facilities that result in increases of at least 75,000 tons per year of GHGs would be subject to the PSD program even if the modifications do not result in significant emission increases of other pollutants. EPA estimates that these step two provisions will require about 550 new sources to obtain Title V permits and will result in about 900 additional PSD permitting actions.

The final Tailoring Rule also includes a third step whereby EPA states that it will undertake another rulemaking that will conclude by July 2012 and address phasing in Title V and PSD permitting requirements, or exclusions, for smaller GHG sources. This additional rulemaking will not require permitting for sources with GHG emissions below 50,000 tons per year, and any smaller sources that are subject to this future rule will not require permits until at least April 30, 2016. In addition, the final Tailoring Rule commits EPA to a study of any remaining GHG permitting issues for smaller sources, including the possibility that streamlining and/or general permits will allow for additional sources to be phased into the PSD and Title V permitting programs for GHGs.

Importantly, the final Tailoring Rule does not establish BACT requirements for GHGs. Late last year, EPA convened an advisory committee to examine issues associated with establishing BACT for GHGs. That group released its initial report earlier this year, but the group did not come to consensus on a number of issues. Since that time, EPA has indicated that BACT for GHGs would likely involve energy efficiency measures (as opposed to carbon capture and sequestration or other technologies). The final Tailoring Rule states that EPA plans to issue guidance and other information on BACT for GHGs by the end of 2010.

Finally, in March, EPA proposed rules that would subject three additional industrial sectors—oil and natural gas wells, carbon sequestration facilities, and facilities that produce and use fluorinated gases—to EPA's GHG reporting rule, which requires sources that emit 25,000 tons per year of GHGs to monitor and report their annual GHG emissions to EPA. More recently, EPA sent to the U.S. Office of Management and Budget proposed rules that would subject four more sectors—industrial landfills, wastewater treatment facilities, underground coal mines, and magnesium production facilities—to the GHG reporting rule.