Anticipated Developments in Air Quality Regulation

January 16, 2008
Client Alert Newsletter Forecast 2008

2008 represents a potential year of transition for air quality issues, as the Bush administration may be inclined to promulgate or implement certain programs and initiatives during its final year, similar to what we saw at the end of President Clinton's second term. Accordingly, significant developments are anticipated for 2008 relative to air quality regulations and enforcement at both federal and state levels.

With respect to federal regulatory developments, the U.S. Environmental Protection Agency ("EPA") is expected to consider revisions to the National Ambient Air Quality Standard ("NAAQS") for ozone by March 2008. Should EPA decide to further regulate ozone, states, especially those in the Mid-Atlantic region, will be required to identify new emission control standards. As a result, it may be difficult for affected sources to meet the new, stricter standards, given the limited number of remaining options available for controlling ozone emissions. In addition to ozone, EPA plans to review and possibly revise the NAAQSs for lead, nitrogen oxides, sulfur dioxide, and carbon monoxide. EPA is also expected to continue its oversight of the implementation of the 1997 NAAQS for fine particulate matter ("PM2.5") at the state level, as states continue to revise their state implementation plans ("SIPs") to demonstrate attainment of the 1997 PM2.5 standards.

Federal regulatory changes are also expected in light of the February 8, 2008, decision of the D.C. Circuit Court of Appeals, which vacated EPA's Clean Air Mercury Rule ("CAMR"). CAMR sought to regulate mercury emissions from power plants through a cap-and-trade program. Although this matter will be referred back to EPA for further consideration, it is unlikely that there will be any immediate implications in those states that already promulgated mercury regulations, which includes Pennsylvania and New Jersey. Rather, absent a successful legal challenge that the vacateur of CAMR undercuts the validity of state programs, it is anticipated that states will continue to proceed with implementing their respective promulgated regulations.

In addition to the above anticipated developments, other pending matters that may have significant impacts on air quality regulations include: the pending challenge to the Clean Air Interstate Rule ("CAIR") scheduled to be argued before the D.C. Circuit on March 25, 2008; continued judicial challenges against EPA's final rules that increase the threshold for classifying certain ethanol plants as major sources under the New Source Review ("NSR") program, and tighten the 1997 NAAQS for particulate matter; and lastly, EPA's issuance of a final rule requiring electric generating units ("EGUs") to calculate emission increases under NSR on an hourly basis in response to a recent Supreme Court ruling holding that a significant net emission increase under NSR is to be evaluated on an annual, rather than an hourly, basis.

On the enforcement front, EPA has designated NSR as one of its top priorities for 2008, including issues related to recordkeeping requirements and the basis for determining whether NSR applies to a facility modification. Such issues will affect how states structure their own programs to demonstrate attainment with the NAAQS. EPA also plans to evaluate current National Emissions Standards for Hazardous Air Pollutants for more than 50 area sources of hazardous air pollutants to assess the potential for residual risk.

Regulatory developments are also anticipated at the state level. Both Pennsylvania and New Jersey are expected to finalize revisions to their respective SIPs to satisfy the federal CAIR and are also continuing the implementation process to demonstrate attainment of the 1997 PM2.5 NAAQS. Specific to Pennsylvania, the grace period for generating emission reduction credits ("ERCs") expires on May 19, 2008, pursuant to the Commonwealth's NSR regulations. The grace period creates an opportunity for ERC registration for sources that generated emission reductions of criteria pollutants after January 1, 2002, but failed to submit an ERC registry application within one year of the reduction. Pennsylvania will also continue to implement its permit streamlining process. With respect to New Jersey initiatives, the state is expected to focus on evaluating certain requirements for Reasonably Available Control Technology, as well as the use of emission factors in proposing permit limits. Delaware also recently announced that it will be preserving its existing NSR program in lieu of pursuing its proposal to implement facility-wide emission limits.