Supreme Court Rolls Back EPA's Regulation of Greenhouse Gases in Utility Air Regulatory Group Decision

The U.S. Supreme Court has delivered a stunner with its decision this morning in Utility Air Regulatory Group v. Environmental Protection Agency. The Supreme Court has curtailed the U.S. Environmental Protection Agency’s (EPA) regulation of stationary source greenhouse gas (GHG) emissions under two Clean Air Act permitting programs - New Source Review Prevention of Significant Deterioration (PSD) and Title V. EPA can no longer require PSD or Title V permits for stationary sources based on a source’s GHG emissions, unless a source is already subject to the permitting programs. However, if a source triggers PSD permitting for another pollutant, the Court has left the door open for EPA to require the source to undergo a Best Available Control Technology determination for GHGs. Today’s decision in Utility Air Regulatory Group has significant ramifications for industrial source permitting. See our alert for more details.

EPA Unveils Sweeping New CO2 Rules

Yesterday EPA Administrator Gina McCarthy unveiled the highly anticipated carbon dioxide rules for existing power plants.  Dubbed the “Clean Power Plan,” the rules taken together likely will have a significant impact on industrial and other consumers of electricity as well as developers of natural gas-fired and renewable  generation (e.g., solar, biomass and wind). Stoel Rives attorneys with significant Clean Air Act experience react to the new rules in a client alert available here.

U.S. Supreme Court Hears Arguments in Landmark Case on Federal Greenhouse Gas Regulation

My colleague, Daniel Lee, followed oral argument yesterday in the U.S. Supreme Court's consideration of federal greenhouse gas (GHG) regulation in Utility Air Regulatory Group v. EPA, and provides this analysis:

During oral argument for Utility Air Regulatory Group v. EPA this Monday, the Supreme Court conflicted over a number of issues including the application of Chevron deference,  the scope of the Court’s holding in Massachusetts v. EPA, and the nature of the Prevention of Significant Deterioration (PSD) program under the Clean Air Act (CAA). At the broadest level, the Court will decide whether the EPA’s PSD program regulating emissions from stationary sources will apply to greenhouse gas emissions. Much of the Justices’ questioning focused on whether EPA’s interpretation, that the PSD statute required regulation of GHGs, was reasonable and would receive Chevron deference. Pointing out that the parties had advanced four separate interpretations of the statute, Justice Sotomayor suggested the statute’s “quintessential ambiguity” implicated Chevron. Justice Kagan went further to suggest that EPA’s interpretation was “most reasonable” in light of its longstanding adherence to the position and that there is “nothing that gets more deference than this Agency with respect to this complicated a statute.” 

To overcome the Chevron hurdle, petitioners emphasized the incongruence between the local focus of the PSD program and the broader, global effects of GHGs. However, Justice Ginsburg countered that GHGs had “severe effects at the local level” according to EPA’s endangerment finding. In contrast, Justice Alito emphasized that GHGs are nevertheless distinguishable from other substances regulated under the PSD program because of the large quantity of GHGs emitted. 

 

Less aggressive was the questioning from Justice Kennedy, whose vote has often been the deciding factor for the Court. Justice Kennedy reaffirmed that the Court must abide by Massachusetts v. EPA, but nevertheless indicated that he “couldn’t find a single precedent that strongly supports” the EPA’s position. Yet he also opined that Brown & Williamson, a case relied on by the industry petitioners, was also distinguishable. 

 

If EPA’s interpretation is upheld, PSD and Title V permitting programs will continue to apply broadly to industrial emitters of GHGs.  If EPA’s interpretation is not upheld EPA could continue to regulate GHGs through the New Source Performance Standards program but would presumably need to withdraw the PSD and Title V permits issued for GHGs and many sources currently undergoing PSD and/or Title V permitting would see their permitting burdens greatly reduced. Additionally, Utility Air Regulatory Group v. EPA will likely add further contour to the sprawling case law on Chevron deference in the context of environmental regulation.

 

See our previous report on the Supreme Court's grant of certiorari in Utility Air Regulatory Group and its related cases for additional background on the controversy's road to the Supreme Court.

Requests to Waive US Renewable Fuels Standard Denied by EPA

The U.S  Environmental Protection Agency (EPA) today announced it has denied requests from the Governors of Arkansas and North Carolina to waive Renewable Fuel Standard (RFS) volume requirements, based on the effects of the drought on feedstocks used to produce renewable fuel in 2012-2013. The petitions, filed in August, triggered a review process to determine if the implementation of the RFS requirements would severely harm the economy of those states.

After considering the nearly 30,000 comments received during the public comment period and empirical evidence, such as the prices of RINs and market commodities, the agency’s economic analyses did not produce sufficient evidence of severe economic harm that would warrant the granting of the waiver request. The EPA analyzed 500 scenarios and found no impact from the RFS program on corn, food or fuel prices in 89% of those scenarios. In the 11% of scenarios where RFS impacts were shown, the impact was less than a 1% change in corn prices. EPA acknowledged that “this year’s drought has created significant hardships in many sectors of the economy, particularly for livestock producers. However, the agency’s extensive analysis makes clear that Congressional requirements for a waiver have not been met and that waiving the RFS would have little, if any, impact on ethanol demand or energy prices over the time period analyzed.”

In its 83-page Notice of Decision (PDF file), EPA interpreted the waiver provision in a manner consistent with its prior response to the first RFS waiver request from Texas in 2008, which was also denied. In both cases, Section 211(o)(7)(A) of the Clean Air Act was interpreted as providing narrow authority. In order to grant a waiver, EPA would have had to determine with a high degree of confidence that implementation of the mandate would not only contribute to economic harm, but would itself severely harm the economy of the State or region requesting the waiver.

While the issue is politically charged, EPA’s decision making process in waiver requests focuses on the legal standard established by the Clean Air Act. The waiver is essentially a pressure relief valve for the program but is only available when the very high standard of severe harm is met. EPA utilized an updated version of an Iowa State University model to analyze 500 scenarios. In 89% of the scenarios, the model indicated that the implementation of the RFS program would have no impact on ethanol production and corn prices. This is consistent with the market reality that ethanol blending is driven primarily by factors other than the RFS, in particular blending economics and the value of ethanol as an oxygenate. A significant additional factor considered in the EPA analysis is the availability of rollover RINs from prior years that can be utilized by obligated parties. To the extent that rollover RINs are used this year, this factor would change significantly should similar drought conditions return next year. 

While this waiver request has now been resolved, interested parties continue to follow EPA rulemaking activities relating to the RFS closely. It is anticipated that the agency will address the issue of RIN fraud in a pending rulemaking. Thanks to my colleague Sara Bergan for her assistance in reporting the EPA's RFS waiver decision today.

EPA Docket ID: EPA-HQ-OAR-2012-0632

D.C. Circuit Rejects Challenge to Introduction of E15 Ethanol Fuel Blend

In a decision released this morning, the DC Circuit rejected a challenge to the introduction of E15, a gasoline blended with 15 percent ethanol, under an EPA waiver grant. Currently, the national gasoline supply consists largely of E10, a 10 percent ethanol/gasoline blend. With fuel manufacturers confronting mandatory annual increases of renewable fuels under the Renewable Fuel Standard (RFS), Growth Energy, a trade association representing the ethanol industry, had sought an EPA waiver for a new 15 percent ethanol/gasoline blend. The EPA provided partial waivers (1 and 2), under the Clean Air Act for the E15 blend, restricting the fuel’s use to light duty motor vehicles and engines from model-year 2001 and newer. Three sets of industry groups representing engine manufacturers, food producers and petroleum suppliers then sued, challenging the EPA’s waivers.

The Ruling

In a 2-1 decision, the court declined to make a decision on the merits, finding that the petitioners lacked standing to bring the action. In a strongly worded dissent, Circuit Judge Brett Kavanaugh disagreed. Kavanaugh then addressed the merits of the case, finding they were “not close.” He concluded that in granting the E15 partial waiver the “EPA ran roughshod over the relevant statutory limits.”

Where We Go From Here

The decision preserves flexibility for implementing the RFS renewable fuels mandates – for now. However, the lack of a decision on the merits means the EPA waiver process remains vulnerable to judicial challenge. In the meantime, the debate over corn-based ethanol fuel mandates may be shifting to Congress, as predictions for historically low corn crop yields continue to accumulate.

Download a copy of the decision in Grocery Manufacturers Association, et al v. Environmental Protection Agency (PDF)

Landmark EPA Clean Air Act Settlement with TVA

On April 14, 2011, the EPA announced the settlement of a twelve year dispute with Tennessee Valley Authority (TVA) over Clean Air Act violations. In the settlement, TVA agrees to permanently retire 2,700 MW of coal power from Alabama, Kentucky and Tennessee and invest an estimated $3 to $5 billion on new and upgraded state-of-the-art pollution controls on 11 coal fired plants. The EPA estimates that this action will prevent an estimated 1,200 to 3,000 premature deaths, 2,000 heart attacks and 21,000 cases of asthma attacks each year, resulting in up to $27 billion in annual health benefits. 

The dispute stems from an administrative compliance order that EPA issued to TVA in November 1999, alleging that TVA modified a number of coal-fired units at nine of TVA's plants without first obtaining preconstruction permits and installing and operating state-of-the-art pollution control technology. Under the settlement agreement, TVA will upgrade 92% of its remaining coal fired fleet by either installing state-of-the-art selective catalytic reduction, flue gas desulfurization, or repowering the assets to burn renewable biomass. The settlement also requires TVA to spend $240 million on energy efficiency initiatives and to provide $1 million to the National Park Service and the National Forest Service to improve, protect, or rehabilitate forest and park lands that have been impacted by emissions from TVA’s plants, including Mammoth Cave National Park and Great Smoky Mountains National Park.

 

TVA, a corporation owned by the U.S. government, provides electricity for 9 million people in parts of seven southeastern states at prices below the national average. TVA, which receives no taxpayer money and makes no profits, developed an “Integrated Resource Plan,” detailing two portfolio standards, 2,500 MW or 3,500 MW of renewable energy by 2020. Notably, only 2 of TVA’s 7 states, North Carolina and Virginia, are subject to RPS standards. 

 

This settlement is a major boost for the renewable energy industry. By 2012, TVA will have 1,625 MW of renewables in its portfolio. In addition to needing 1,000 – 2,000 MW of new renewable generation to fill its renewable energy portfolio, it now must offset its retired 2,700 MW coal power by 2018. 

 

For more information:

 

EPA Press Release on Settlement: http://yosemite.epa.gov/opa/admpress.nsf/ab2d81eb088f4a7e85257359003f5339/45cbf1a4262af67b8525787200516dd7!OpenDocument

 

EPA’s Overview and Settlement with TVA:

http://www.epa.gov/compliance/resources/cases/civil/caa/tvacoal-fired.html

A Change in Direction: EPA Must Consider CO2 Emissions When Issuing Permits for New Power Plants

In case there was any doubt after the recent watershed election, the times they are a-changin’. The U.S. Environmental Protection Agency (“EPA”) Environmental Appeals Board’s (“EAB”) recent ruling, In Re Deseret Power Electric Cooperative, could pave the way for EPA-imposed CO2 emissions limits on power plants and other significant sources of CO2 emissions. In response to a lawsuit filed by the Sierra Club over the EPA’s issuance of a permit authorizing the construction of a new coal generating unit near Bonanza, Utah, the EAB has ruled that the EPA must consider CO2 emissions when determining whether to issue permits for new power plants. 

Background

The Clean Air Act (“CAA”) requires EPA to issue a prevention of significant deterioration (“PSD”) permit whenever a new major source of air pollution is constructed or when major modifications are made to an existing source in certain areas in the U.S. Among other requirements, PSD permits must consider a best available control technology (“BACT”) emissions standard for every pollutant that is “subject to regulation” under the CAA. As the name suggests, BACT is an emissions limit based on the highest achievable degree of control.

 

In 2004, Deseret Power Electric Cooperative (“Deseret”) applied for a PSD permit to build a new waste-coal-fired generating unit at its existing Bonanza Power Plant. Prior to EPA’s issuance of the permit, the Sierra Club filed comments before the EPA suggesting that Massachusetts v. EPA, which was then pending before the U.S. Supreme Court, could ultimately require EPA to impose a BACT emissions limit on the Deseret plant’s CO2 emissions.

 

In its April 2007 decision in Massachusetts v. EPA, the Supreme Court held that CO2 is an “air pollutant” under the CAA. A few months later, EPA issued the PSD permit authorizing Deseret to build the waste-coal-fired generating unit and stating that Massachusetts v. EPA did not require it to cap CO2 emissions. Sierra Club filed a lawsuit arguing in part that EPA violated the CAA in issuing the permit because it did not require a BACT emissions limit for controlling CO2 emissions. EPA countered that based on a historical agency interpretation, it did not have to impose a CO2 BACT limit because CO2 was not subject to any rules or regulations requiring actual control over such emissions.   

 

EAB Decision

 

The EAB explicitly stated that it did not determine that the CAA requires EPA to impose a BACT limit on CO2 emissions. However, it rejected EPA’s reason for not imposing a CO2 BACT limit as not supported by the record. As a result, it remanded the permit to EPA for it to “reconsider whether or not to impose a CO2 BACT limit and to develop an adequate record for its decision.” Thus, the EAB’s decision compels EPA to consider CO2 emissions when evaluating permits for power plants—both new and modified. Although EPA may ultimately decide not to impose a BACT limit, it must at the very least incorporate the BACT analysis into its permit deliberations. 

 

Implications

 

In the short term, the EAB decision will add uncertainty to the certification process for new coal plants, given the high concentrations of CO2 in coal. This uncertainty is likely to continue until a national policy is adopted addressing CO2 emissions. As the EAB noted, “[i]n remanding this permit to [EPA] for reconsideration of the CO2 BACT issue, we recognize that the issue of whether CO2 is ‘subject to regulation’ under [the Clean Air] Act’ is an issue of national scope and that all parties would be better served by addressing it in the context of an action of nationwide scope rather than in the context of a specific permit proceeding.”