EPA Proposes to Regulate GHG Emissions from Major Sources but Significant Questions Remain

December 8, 2009
Client Alert Newsletter December 2009

The U.S. Environmental Protection Agency ("EPA") took another step towards regulating greenhouse gas ("GHG") emissions from stationary sources by publishing its proposed GHG "Tailoring Rule" in the October 27, 2009 issue of the Federal Register. While EPA states that the proposed rule is an attempt to relieve many sources of permitting burdens that would otherwise be imposed upon smaller sources and regulatory agencies, the proposal currently leaves open a number of issues that could ultimately result in significant permitting burdens being placed upon large and small GHG sources.

Under the Clean Air Act's Prevention of Significant Deterioration ("PSD") program, new major stationary sources and existing major stationary sources that undertake major modifications are required to obtain PSD permits and install Best Achievable Control Technology ("BACT") at the source. For purposes of the PSD program the Clean Air Act defines a major stationary source as a source having the potential to emit 100 or 250 tons per year ("tpy") of a “regulated pollutant.” Similarly, the Clean Air Act’s Title V program requires major sources, which in this instance are sources that have the potential to emit 100 tpy of a regulated pollutant, to obtain a consolidated operating permit. While there has been some controversy about whether GHGs are regulated pollutants, EPA’s current position is that GHGs will become regulated pollutants at the latest when EPA publishes its final light-duty motor vehicle rule in March 2010. According to EPA, if the current 100 and 250 tpy thresholds are applied to GHGs, annual PSD permit applications would increase from 300 to 41,000, and the number of sources required to obtain Title V permits would increase from 15,000 to 6 million. These new sources would include facilities such as office buildings, hospitals and retail establishments.

In an effort to avoid this result, EPA's proposed Tailoring Rule would initially set new major source thresholds of 25,000 tpy of GHGs (measured as carbon dioxide equivalents or "CO2e") for purposes of the PSD and Title V programs, meaning that only large sources would initially be subject to the PSD and Title V programs as a result of GHG emissions. Additionally, the EPA indicated that for purposes of the PSD program, the level for determining what constitutes a major modification would fall somewhere between 10,000 and 25,000 tpy.

EPA's proposed Tailoring Rule raises some key issues which will invariably be discussed as part of the public comment period. First, it is unclear whether EPA has the authority to modify the PSD and Title V thresholds in the Clean Air Act for GHG sources without Congress’ approval. In the Tailoring Rule, EPA asserts that the potentially huge increase in sources subject to the PSD and Title V programs under the current thresholds allow EPA to make these adjustments under the "long-established judicial doctrines of absurd results and administrative necessity." In addition, EPA has indicated that these new thresholds would only be a temporary first phase that would last at most six years after the rule is promulgated. During this time, EPA would "vigorously" develop streamlining techniques that would allow regulatory agencies to apply the PSD and Title V programs to a much larger number of sources using the 100 and 250 tpy statutory thresholds. These techniques could include how to calculate potential emissions or the use of general permits with presumptive BACT requirements. Despite EPA's efforts to work around the Clean Air Act’s thresholds, looking at recent decisions where courts have found EPA to be overstepping its statutory authority, it is not difficult to imagine a court rejecting EPA's Tailoring Rule and requiring the application of the 100 and 250 tpy thresholds.

Additionally, EPA concedes that it is currently unclear as to what constitutes BACT for purposes of controlling GHG emissions. Earlier in October, EPA's Clean Air Act Advisory Committee established a "Climate Change Work Group" comprised of various stakeholders that, among other things, will examine various aspects of the BACT process as it might apply to GHG emissions. A draft report from this group is due before the end of 2009 with a final report due in March 2010. Comments on EPA's proposed Tailoring Rule are due by December 28, 2009.