Unwinding the Supreme Court’s GHG Decision: What Does It All Mean, Anyway?

July 3, 2014
Carol F. McCabe
MGKF Special Alert

The United States Supreme Court issued its long-awaited decision in Utility Air Regulatory Group v. EPA on June 23, 2014. 573 U.S. ___ (2014).  (The opinion is available at http://www.supremecourt.gov/opinions/13pdf/12-1146_4g18.pdf)  On petition for certiorari from a decision in the D.C. Circuit, the Court provided clear boundaries for permitting of greenhouse gases (“GHGs”) under Prevention of Significant Deterioration (“PSD”) and Title V programs for major stationary sources of air pollutants. While the Court upheld EPA’s ability to apply permitting requirements to many large stationary sources, smaller emitters will escape Title V and PSD review requirements based solely on GHG emissions. This article will provide a brief background and discussion of the decision, along with thoughts for evaluating the decision’s impacts at the facility level.

By way of brief background, Clean Air Act PSD and Title V requirements apply to “major” stationary sources of air pollutants.  For PSD, major sources are those that emit either 100 tons per year (for certain source categories) or 250 tons per year of a regulated air pollutant.  42 U.S.C. § 7479.[1]  Under the Title V program, a 100 ton per year threshold generally applies, except in the case of hazardous air pollutants or pollutants for which a geographical area is in non-attainment with National Ambient Air Quality Standards. 42 U.S.C. § 7661.  Having determined in 2009 that GHGs from new motor vehicles should be regulated under the Clean Air Act, EPA then sought to regulate GHGs under the stationary source PSD and Title V programs.  However, since the 100 / 250 ton per year thresholds would produce the “absurd” result of sweeping in very small sources of GHGs, EPA developed “tailored” emissions thresholds to better reflect the very high levels at which these pollutants are emitted.  Accordingly, EPA’s “Tailoring Rule” established PSD and Title V major source thresholds of 100,000 tons per year of carbon dioxide equivalent (“CO2e”) for GHGs under these programs.[2]  See 40 C.F.R. §§ 52.21(b)(49) & 70.1.  For major PSD sources, EPA’s rules would impose a requirement to meet the best available control technology (“BACT”) for GHGs upon a modification that results in an increase of GHG emissions greater than 75,000 tons per year of CO2e.  40 C.F.R. § 52.21(b)(49).  After challenges to several related EPA rulemakings and a ruling by the D.C. Circuit, the Supreme Court accepted review.[3]

The Decision
The UARG Court’s review was limited to the following question: “Whether EPA permissibly determined that its regulation of greenhouse gas emissions from new motor vehicles triggered permitting requirements under the Clean Air Act for stationary sources that emit greenhouse gases.”  Slip op. at 9.  The Court divided its review into two parts: first, whether EPA correctly determined that GHG emissions alone could cause a source to trigger PSD and Title V as a “major” source; and second, whether EPA correctly determined that a major source that is otherwise subject to PSD because of its emissions of conventional (non-GHG) pollutants (referred to as an “anyway source”) could be subject to BACT requirements for GHGs upon modification of the source.

In addressing the first issue, the Court disagreed with the D.C. Circuit, finding that the Clean Air Act neither compels nor permits EPA’s determination that GHG emissions alone may trigger PSD and Title V requirements.  In short, although the Court’s decision in Massachusetts v. EPA, 549 U.S. 497 (2007), allowed GHGs to be considered an “air pollutant” under the broad definitions of the Clean Air Act, it did not require that GHGs must be regulated under every Clean Air Act program.  And in evaluating whether EPA’s application of PSD and Title V to GHGs would nonetheless be a permissible construction of the Clean Air Act, the Court held that to do so would be inconsistent with the structure, purpose and context of the PSD and Title V permitting programs under the Act:

EPA’s interpretation is also unreasonable because it would bring about an enormous and transformative expansion in EPA’s regulatory authority without clear congressional authorization.  When an agency claims to discover in a long-extant statute an unheralded power to regulate a ‘significant portion of the American economy’ (citations omitted), we typically greet its announcement with a measure of skepticism.

Slip op. at 19.  The Court further held that EPA could not overcome these problems by “tailoring” the PSD and Title V thresholds to GHGs. 

EPA’s rewriting of the statutory thresholds was impermissible and therefore could not validate the Agency’s interpretation of the triggering provisions. An agency has no power to “tailor” legislation to bureaucratic policy goals by rewriting unambiguous statutory terms. 

Id. at 21.  Accordingly, the Court held that EPA may not interpret the Clean Air Act to impose PSD and Title V permitting requirements upon stationary sources that are “major” only for GHGs.

In addressing the second issue, whether a PSD major “anyway source” could be subject to BACT for GHGs, the Court deferred to EPA’s interpretation of the Clean Air Act, determining that it is a permissible interpretation of the statute.  “[A]pplying BACT to greenhouse gases is not so disastrously unworkable, and need not result in such a dramatic expansion of agency authority, as to convince us that EPA’s interpretation is unreasonable.” Id.at 28.  Noting that the imposition of BACT would not extend EPA’s jurisdiction over millions of previously unregulated entities, the Court explained its “narrow” holding that the Clean Air Act does not prohibit EPA from applying BACT requirements to “anyway sources.”  In doing so, the Court commented that EPA must justify its selection of a de minimis threshold below which BACT would not apply for GHGs.

The Court’s discussion of BACT for GHGs did expressly acknowledge certain potential concerns raised by industry.  Specifically, industry petitioners argued that BACT, which is typically focused on end of stack controls, is inconsistent with the reduction of GHG emissions, which is more suited to energy efficiency measures.  Without dismissing these fears as unfounded, the Court noted that there are important limitations on BACT that may mitigate these concerns, including that BACT cannot be used to require a fundamental redesign of a proposed facility, and that BACT can be applied only to those pollutants that the source itself emits (and thus cannot be used to require reductions in a facility’s electricity demand). 

So What Does It Mean?
The immediate result of the Court’s UARG decision is that stationary sources that do not exceed the 100 / 250 tons per year thresholds for conventional (i.e. non-GHG) pollutants will not be pulled into Title V or PSD based solely on GHG emissions.  This is a significant victory for facilities that have otherwise avoided Title V and/or PSD, but because of combustion- or process-related GHG emissions could have become newly subject to these programs under EPA’s Tailoring Rule.  Some examples of these types of facilities may include glass manufacturing plants, landfills, and manufacturing and institutional facilities with significant on-site steam or electric generating capacity.  Although EPA estimates these types of facilities to constitute a very small percentage of the facilities that would otherwise be affected by the Tailoring Rule, the result of the UARG decision is meaningful for these sources.

For PSD “anyway sources,” the UARG decision upholds EPA’s ability to impose BACT requirements for increases in GHGs above de minimis thresholds in a modification scenario. EPA estimates that the vast majority of sources that would be covered under the Tailoring Rule are “anyway sources.”  As currently written, EPA’s Tailoring Rule would apply BACT to GHGs when an emission increase of 75,000 tons per year of CO2e occurs as the result of a modification.  The Court was careful not to endorse EPA’s selection of this threshold, however, noting that EPA “did not arrive at that number by identifying the de minimis level” and that “EPA must justify its slection on proper grounds.”  Based on these statements from the Court, it is reasonable to believe that EPA will conduct future rulemaking to either justify or revise the 75,000 ton per year de minimis threshold for the application of BACT to GHGs. 

In the wake of the UARG decision, all stationary sources with the potential to emit GHGs should carefully evaluate their status as either non-major sources or PSD “anyway sources.”  These classifications will have meaningful implications for future projects and the relative ease or burden of permitting efforts.  Existing non-major sources should evaluate projected growth and determine whether they can continue to avoid a major source classification for PSD purposes, because doing so will have the double benefit of avoiding PSD requirements for conventional and GHG pollutants.  PSD “anyway sources” should evaluate current emissions and future growth scenarios to determine whether it may be feasible to exit the PSD program by taking enforceable limits on the potential to emit conventional pollutants, again with the double benefit of avoiding PSD requirements, including BACT for conventional and GHG pollutants.  Finally, “anyway sources” should be aware of additional rulemaking actions or guidance from EPA on de minimis thresholds for application of BACT, appropriate considerations in BACT determinations, and the types of BACT requirements imposed on similar sources.   

Finally, while UARG has been seen as a partial win for industrial sources, it has been heralded by EPA as a “resounding win” for EPA.  A June 23 blog post by Avi Garbow, EPA’s General Counsel, notes that “EPA’s inaugural suite of carbon pollution rules have now been fully vetted in federal court, and have emerged victorious, and largely unscathed.”  Garbow further noted that “[t]he Court’s holding leaves in place EPA’s approach with respect to the vast majority of the carbon pollution inventory subject to the Act’s permitting provisions. And, importantly, this decision in no way affects the Agency’s ability to proceed under the Act to address carbon pollution from new and existing power plants.”  (The blog post is available at http://blog.epa.gov/epaconnect/2014/06/another-favorable-opinion-from-the-supreme-court/)

Thus, while the Supreme Court’s UARG decision perhaps eased the GHG permitting burden for some sources, it did not upend EPA’s carbon strategy, and there is clearly more to come.

[1] The types of sources subject to the 100 ton per year threshold include Portland cement plants, large fossil-fuel fired steam electric plants, petroleum refineries, smelters, and iron and steel mills.

[2] The measure of GHGs in tons of CO2e reflects the emissions and global warming potentials of the group of six GHGs; carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride.  See 40 C.F.R. § 52.21(b)(49).

[3] In Coalition for Responsible Regulation, Inc. v. EPA, 684 F.3d 102 (D.C. Cir. 2012) (per curiam), the D.C. Circuit largely upheld EPA’s regulation of GHGs under the so-called “Endangerment Finding,” “Triggering Rule,” “Timing Rule” and “Tailoring Rule.”   Together, these EPA actions established the rationale and procedures by which large stationary sources of greenhouse gas emissions would be subjected to Clean Air Act PSD and Title V permitting programs.