Global Climate Law Blog : Global Climate Law Blog : Published by Howrey Law Firm : Climate Attorneys and Environmental Lawyers

The timing of the Coalition’s June comments and Petition For Review is worth noting in light of the fact that the USEPA findings came out just before the United Nations Climate Change Conference in Copenhagen (held on December 7^th through the 18^th), just after the November 23 disclosure that data had been taken from the Climatic Research Unit (CRU) of University of East Anglia and the October 2009 petition filing by the Competitive Enterprise Institute (CEI) to reopen the proceedings for the EPA’s Proposed Findings because the CEI was concerned about evidence concerning the destruction of data at the CRU. Lastly while the USEPA denied the CEI’s request, the CRU is now in the process of doing an internal review and expects results of its review in Spring 2010. CRU stated that the purpose of the review is to determine whether there is any evidence of the manipulation or suppression of data, which is at odds with acceptable scientific practice and may therefore call into question any of the research outcomes.

Given all of the above, it is likely that the comments by coalition of companies mentioned above, the CEI, and others (including OMB) will likely be a road map of the issues that will be addressed in the Petition motions to be filed in February 2010. Clearly, the battle in the courts over how to regulate greenhouse gases is just beginning.

TransAlta Corporation bought the Centralia coal-burning plant in 2000. In efforts to reduce emissions, TransAlta invested in $200 million worth of “scrubbers.” However, the plant continued to offend environmental groups, as it was a primary source of carbon dioxide, mercury, and nitrogen oxide emissions. The petition claims that these emissions constitute air contaminants that are detrimental to human health and welfare, property, and business. In particular, the petitioners contend that the SWCAA has failed to provide for the control of carbon dioxide and mercury emissions, failed to provide for adequate control of nitrogen oxide emissions, and failed to require Reasonably Available Control Technology to control carbon dioxide and mercury emissions. The petitioners also claim that the permit does not adequately protect against haze-pollution over Mount Rainier, the Olympic and North Cascades National Parks, and other forest, wilderness, and recreational areas. These areas are designated Class I areas under the Clean Air Act.

The petitioners, which include the Sierra Club, National Parks Conservation Association, and Northwest Environmental Defense Center, also object to the permit because it does not integrate the terms of a settlement agreement reached in September 2009 between TransAlta and the Washington Department of Ecology. The agreement is a result of mediation over air quality disputes between the two entities. The key points of the agreement are TransAlta’s goals of: 1) decreasing nitrous oxide emissions by 20%; and 2) implementing technology to control and monitor mercury emissions. Although the petitioners would like this agreement to be part of the renewed permit, they also claim that the agreement itself is inadequate. On November 9, the last day of the public comment period on the agreement, they filed a letter seeking heightened restrictions, including a 90% (rather than 50%) reduction in mercury emissions.

Coal-fired plants are becoming an increasingly salient issue in climate law. The EPA has recently sided with environmental groups to block permits that fail to adequately address greenhouse gas emissions, but it remains to be seen whether this will become a common outcome in court.

Chamber of Commerce and NADA Challenge
In its challenge to the EPA decision to grant the waiver to California, the Chamber and the NADA raised six issues for the Court to decide:

1. Whether the EPA erred in reconsidering and reversing the denial of California’s request to waive preemption for its greenhouse gas emission standards under Section 209(b);
2. Whether the EPA erred in concluding that the California determination that its own gas emissions standards satisfy the Clean Air Act’s “protectiveness” standard was not arbitrary and capricious;
3. Whether the EPA erred in not denying California’s waiver request because California did not meet the requirement of showing that its standards were needed to meet compelling and extraordinary conditions;
4. Whether the EPA erred in not denying California’s waiver request because it was inconsistent with Section 202(a) of the Clean Air Act [which addresses “Emission standards for new motor vehicles or new motor vehicle engines”];
5. Whether the EPA complied with procedural requirements of the Clean Air Act and Administrative Procedure Act in reversing its earlier decision; and
6. Whether California is precluded from obtaining a preemption waiver for its greenhouse gas emission standards under the Energy Policy and Conservation Act of 1975.

States, Environmental Groups Intervene in Support of EPA
Seventeen states, led by New York, have moved to intervene in the lawsuit on the side of EPA. The other states are Arizona, Connecticut, Delaware, Illinois, Iowa, Maine, Maryland, Minnesota, New Jersey, New Mexico, Oregon, Rhode Island, Vermont, Washington, Florida, and Pennsylvania. The South Coast Air Quality Management District (California) also filed a separate motion to intervene in support of EPA and Administrator Jackson, as did the environmental organizations Environmental Defense Fund, Natural Resources Defense Council, the Sierra Club, and Environment California.

There has been no substantive briefing, but the EPA has filed a motion seeking an extension from the usual 30 days to respond to 90 days due to the complexity of the issues. The EPA previously stated that the decision to grant the waiver followed the law and was based on a comprehensive analysis of the science and that it is confident the courts will uphold the decision.

National Regulations
Earlier this year, the Obama administration reached consensus with the big three American automobile manufacturers on national regulation of greenhouse gas emissions from vehicles. On May 19, 2009, at a Rose Garden ceremony filled with representatives of major automobile manufacturers worldwide, President Obama announced that the EPA and National Highway Traffic Safety Administration will propose greenhouse gas emissions limits for cars and light trucks for model years 2012-16. The only way to reduce certain emissions is to increase fuel efficiency. Accordingly, the Administration’s proposal will require an average fuel economy standard of 35.5 mpg by 2016.

Then, on June 30, 2009, the EPA announced that it was reversing its decision under the Bush administration to deny California’s request for a waiver under the Clean Air Act. By reversing its decision and granting the waiver, the EPA is permitting California to enforce its own emission regulations. Fifteen states have already adopted the California plan. After 2011, compliance with the anticipated national regulations would satisfy the California standards, so assuming the national regulations are finalized in time, the waiver effectively allows states to impose regulations applicable to the model years 2009-2011. However, California could also impose more stringent restrictions after 2016.

The Chamber opposes such regulation because of the heavy burden it predicts will be placed on US businesses, and has previously attempted to slow or derail EPA regulation of greenhouse gas emissions under the Clean Air Act. The Chamber sought a hearing regarding the EPA’s decision to regulate GHGs under the CAA, and stirred controversy by characterizing the proposed hearing as a “Scopes monkey trial” on climate science. Some members have canceled their membership in the Chamber because of disagreement with the Chamber’s position on regulation of greenhouse gases. Meanwhile, advocates of increased regulation of greenhouse gas emissions have also excoriated the Chamber’s position on EPA regulations. Whatever their position, stakeholders on all sides of the issue will be closely watching the outcome of this lawsuit.

The environmental groups allege that reducing emissions of major pollutants from these CAFOs can improve human health, reduce suffering of farm animals, protect habitat for wildlife, and reduce the effects of climate change and other environmental problems. The petition contends that regulating air pollution from CAFOs will create an incentive for new CAFOs to reduce emissions through alternate means of production. A report by the Food and Agriculture Organization of the United Nations (FAO) found that animal farms were responsible for contributing 18 percent of all greenhouse gas emissions—more than even the transport sector. 

Currently the EPA does not require that CAFOs meet any emissions standards under the Clean Air Act. However, some scientific surveys, including the US Inventory Report adopted by the EPA, establish that CAFOs meet the standards for regulation under section 111 of the Clean Air Act as a source that causes or contributes significantly to air pollution. Despite this evidence, agriculture maintains a strong constituency in Congress, including House Agriculture Chairman Collin Peterson (D-Minn.), who has been vocal about the need to exempt farms from new climate change legislation.

In addition the the Humane Society, petitioners include the Association of Irritated Residents; Center on Race, Poverty and the Environment; Clean Air Task Force; Dairy Education Alliance; El Comité para el Bienestar de Earlimart; Environmental Integrity Project; Friends of the Earth; and Waterkeeper Alliance.

In EPA Administrator Lisa P. Jackson’s order, she found that the permit issued by Kentucky’s Division for Air Quality for the 2,273 MW Paradise Fossil Fuel Plant failed to require pollution controls and monitoring for nitrogen oxide pollution. Specifically, in requiring the TVA to submit a revised permit application, Jackson said the current permit did not (1) include proper analysis for the plant's three boilers for NOX when making upgrades; (2) require adequate monitoring systems for opacity and NOX; or (3) provide adequate monitoring from soot emissions from the coal washing and handling.

However, on four other claims Jackson sided with Kentucky’s Division for Air Quality and TVA finding that the permit (1) should not require year-round operation of the selective catalytic reduction system and (2) should not include case-by-case determination of the maximum achievable pollution control technologies for several boilers.

According to TVA, the Paradise plant generates 14 billion kilowatt-hours of electricity a year, enough to supply more than 930,000 homes. By 2010, TVA estimates it will spend about $6 billion on emissions controls at its fossil-fuel plants to ensure that this power supply is generated as cleanly as possible, consistent with efficiency.

The Clean Air Act allows parties to seek judicial review of the order within 60 days of publication in the Federal Register. The notice of the final order was published in the Federal Register on August 10, 2009.

IPI claims that EPA’s response is mandatory under Massachusetts v. EPA, in which the Supreme Court held that 1) greenhouse gases are “air pollutants”; 2) in responding to a petition, EPA responses must have “reasoned justification” or must “conform to the authorizing statute”; and 3) “The harms associated with climate change are serious and well recognized.”

In its petition, IPI requests that the EPA first, make a positive endangerment finding, and second, propose and finalize regulations, pursuant to its “ample authority” under the Clean Air Act, in particular Sections 211 (motor vehicles) and 231 (aircraft). Notably, the EPA recently proposed such a finding for emissions from new motor vehicles.

The IPI espouses a system that creates market-based incentives that allow the market to naturally find the most cost-efficient way to reduce emissions. Because a command-and-control system would prescribe the particular conduct for many actors, IPI claims that this would impose costly requirements on the transportation sector. However, cap-and-trade would allow businesses to adhere to the Clean Air Act, while finding ways to comply at the lowest possible cost. IPI also notes the transparency of this system, and the possible benefits for international trade. A key feature of the proposed system is that allowances are auctioned off, as opposed to a permit give-away system. In short, the emissions cap will raise the cost of fuel, which will send a price signal to conserve and switch to cleaner fuels. According to IPI, the revenues from auctions will offset the price increase, prevent harm to the middle class, and avoid windfall corporate profits.

IPI emphasizes that this comprehensive approach will prevent the EPA from addressing individual petitions piecemeal. Also, IPI warns of a “collision course” with Congress, noting that Congress will likely pass broad cap-and-trade legislation that would supersede any command-and-control mechanisms that EPA creates. In fact, on June 26, the House passed the American Clean Energy and Security Act of 2009 (ACES), which establishes a cap-and-trade system for stationary sources. The IPI therefore claims that its proposed regulations would prevent EPA from wasting time and resources on new command-and-control regulatory measures.

In a written statement, Calpine’s president and CEO states that “The combined-cycle technology allows us to commit to lower emissions while increasing efficiency – meaning we use less natural gas and emit fewer greenhouse gases while delivering more power to our customers and ultimately the American consumer.” This may well reflect Calpine’s “long-term commitment to environmental stewardship,” but a strong case can also be made that Calpine simply made a smart business decision by recognizing that the Environmental Appeals Board will no longer pass on any power plant permit that fails to limit greenhouse gas emissions.

The permitting of a power plant has for decades been an expensive, time-consuming, and extremely uncertain endeavor. Recent developments in administrative law, legislative proposals, growing public concerns about global climate issues, and a new administration have combined to create a sea of change. This may well explain why a large, sophisticated power generator would voluntarily assume unprecedented regulatory obligations.

New power plants must obtain a Clean Air Act permit under the EPA’s “prevention of significant deterioration” (PSD) rulemaking. PSD requires that “best available control technology” (BACT) be applied to control emission of air pollutants. In recent years the environmental community has attempted to require permitting authorities to limit greenhouse gas emissions under PSD permits. As part of this effort, in November 2008, the Environmental Appeals Board (EAB) reviewed the appeal of a PSD permit issued by the EPA, Region 8 in In re: Deseret Power Electric Cooperative. In Deseret, the Sierra Club argued that Region 8 had erred by failing to apply BACT to CO₂ emissions from the permit granted for a waste-coal-fired electric generating unit proposed for a power plant near Bonanza, Utah. Asserting that the US Supreme Court had determined that CO₂ was an “air pollutant” within the meaning of the Clean Air Act in Massachusetts v. EPA, the Sierra Club argued that the power plant permit violated the requirement to include a BACT emissions limit for “each pollutant subject to regulation under the Clean Air Act.” In a dense decision, the EAB determined that Region 8 was not bound by prior agency interpretations of PSD regulations, and on that basis remanded the permit so that Region 8 could develop a record for the decision to not apply BACT requirements to CO₂ emissions. The EAB suggested, however, that it would be best if the EPA provided overarching guidance, rather than require each PSD permitting authority to consider anew the question whether greenhouse gas emissions required regulation in the context of discrete PSD applications.

In response to Deseret, a month before President Obama’s inauguration, the EPA issued a memorandum entitled “Interpretation of Regulations that Determine Pollutants Covered by Federal Prevention of Significant Deterioration (PSD) Permit Program” (the “PSD Memo”). In the PSD Memo, the outgoing Administrator of the EPA determined that air pollutants, like CO₂, that had only been subject to monitoring and reporting requirements should not be considered in the PSD program. Moreover, although noting the substantial public interest in global climate issues, by framing the PSD Memo as an “interpretation,” the Administrator avoided the public participation process that rulemaking requires.

The environmental community promptly sought reconsideration of the PSD Memo and, shortly after President Obama’s inauguration, the EPA’s new Administrator granted reconsideration and opened the issue to public comment. At the same time, however, the EPA “decline[d] to take action to stay the effectiveness of the [PSD Memo] at this time.” In doing so, Lisa Jackson, the Obama administration’s new head of EPA, emphasized that the PSD Memo did not bind any state permitting authorities that issue permits under State Implementation Plans and that, in light of the grant of reconsideration, “other PSD permitting authorities should not assume that the [PSD Memo] is the final word on the appropriate interpretation of Clean Air Act requirements.”

Two subsequent events are worth noting: On April 17, 2009, the EPA released for public comment the Proposed Endangerment and Cause or Contribute Findings for Greenhouse Gases under Section 202(a) of the Clean Air Act, in which it proposed finding that greenhouse gases are air pollutants subject to regulation under the provisions that govern motor vehicle emissions. The EPA emphasized, however, that its endangerment finding proposal, “as well as any final action in the future, would not itself impose any requirements on industry or other entities. An endangerment finding under one provision of the Clean Air Act would not by itself automatically trigger regulation under the entire Act.” In other words, simply because the EPA intends to regulate vehicle emissions of greenhouse gases does not mean that stationary source emissions of greenhouse gases will be regulated under the Clean Air Act. Nevertheless, several weeks later the EPA voluntarily asked the EAB to remand a permit for the Desert Rock Energy Facility in New Mexico so that it could apply BACT to greenhouse gas emissions.

Against this rather complicated background, Calpine’s decision to voluntarily agree to limit greenhouse gas emissions makes sense, as it had already decided to employ the most energy efficient, commercially available generating technology that would meet the power generating needs of the project. Doing so, however, is apparently unprecedented: According to BAAQMD, “no facility the Air District is aware of has ever been subject to an enforceable BACT limit on its emissions of greenhouse gases; nor has any facility, to the Air District’s knowledge, been subject to an enforceable limitation on its efficiency (heat rate per kW-hr of power output).”

One might expect such environmental gains to moderate the opposition of the environmental community. Not so: Opposition to the proposed Russell City Energy Center remains undeterred. According to Brian Bateman, BAAQMD’s Director of Engineering, the Air District expects the final permit will be appealed to the EAB. For environmentalists, one major remaining concern is the level of NOX emissions. Even if an EAB appeal failed to remand a final permit for NOX emissions limits, the delay could be enough to ensure that pending legislation – which in its present form requires major stationary sources of NOX to obtain offsets – would apply. In such an uncertain regulatory and economic climate, the one certainty that seems to exist is opposition to new power plants.

California had first asked for a waiver to impose its own, more stringent limits on greenhouse gas emissions in December 2005. The EPA at that time took the position that it did not have the authority to regulate those emissions under the terms of the Clean Air Act. That argument was rejected by the Supreme Court in 2007 in the case of Massachuetts v EPA, in which the Supreme Court ruled that EPA has the authority to regulate GHGs under the Clean Air Act if they cause or contribute to air pollution that may reasonably be anticipated to endanger public health or welfare. In that case, twelve states and several cities had brought suit against the EPA to force the agency to regulate carbon dioxide and other greenhouse gases as "pollutants" under the Clean Air Act. EPA had taken the position that it did not have the authority to regulate carbon dioxide and green house gases under the CAA because they were not "pollutants" pursuant to the terms of the Act. The Supreme Court disagreed, and required EPA to evaluate whether greenhouse gas emissions from cars – as "pollutants" under the Act – should be regulated.

After the Supreme Court's ruling, EPA reconsidered the issue and again refused to regulate carbon dioxide and greenhouse gas emissions. It also denied at that time California's petition for a waiver to set its own tailpipe emission standards.

In May 2009, the Obama Administration announced new national auto emissions standards that will require automakers to boost the average fuel efficiency of cars sold in the US from their current level of 25.1 miles per gallon to 35.5 miles per gallon starting in 2012. California's new auto emission standards, which are effective immediately, will apply for car models for the years 2009 to 2011. Subsequently, from 2012 to 2016, all carmakers that comply with the new national program will be considered to be in compliance with California's requirements. After 2016, California may again be able to set more stringent limits than the national limits existing at that time.

The EPA originally issued a permit for the Desert Rock facility on July 31, 2008 – just one day before the deadline negotiated between the EPA and Desert Rock due to litigation over the EPA’s delay. Under the Bush administration, the EPA did not consider carbon dioxide emissions under PSD, which requires new and modified plants that increase emissions to use BACT to control emissions. Under the Obama administration, however, the EPA is seeking to regulate greenhouse gas emissions via the Clean Air Act, including consideration of greenhouse gas emissions under PSD.

Proponents of the EPA’s request to remand the permit argue that the EPA should be allowed to take back the permit and consider it in light of the new information regarding IGCC and the agency’s new approach to PSD and controlling carbon dioxide emissions. Environmental groups also have argued to the EAB that Desert Rock's lawsuit regarding alleged delay in issuing the PSD permit forced the EPA to issue the permit before the review was complete.

Those in favor of reinstating Desert Rock’s permit counter that the EPA’s ability to rescind a previously issued permit under these circumstances has serious ramifications. On June 11, 2009, Desert Rock filed its opposition to the EPA’s voluntary remand. “The matter now before the Board is unprecedented,” argued Desert Rock Energy Co. in its brief filed with the EAB. “Although it arises in the context of a challenge to a Clean Air Act permit, the Board's decision in this case will reflect on the integrity of EPA as an institution and its respect for basic notions of fairness and due process.”

Desert Rock argues that the EPA is trying to apply rules that do not yet exist to a permit that has previously been issued, which it describes as arbitrary and capricious. As such, Desert Rock argues that the EPA is seeking to bind Desert Rock today to the prospective change in the agency’s energy policy of tomorrow. And according to Desert Rock, the EPA is seeking to change long-standing agency positions without public notice and comment. Finally, Desert Rock asserts that if the EAB grants the EPA’s request for a voluntary remand of the permit, it would effectively be withdrawing Desert Rock's PSD permit without hearing or review, in violation of due process.

In addition to the EPA’s reputation, the due process concerns, and the potential Clean Air Act violations, Desert Rock is concerned about the financial investment and economic risk to the Navajo people. Argued the power plant’s owner, “At immediate stake are the millions of dollars already invested in the Desert Rock Project, hundreds of millions of dollars in revenue and thousands of jobs for the Navajos, and a reliable source of energy for an area of the country that desperately needs it.”

On June 22, 2009, the appeals board issued an order granting the EPA’s request to file a reply brief to Desert Rock’s June 11th opposition. The EPA’s reply is due to the appeals board no later than June 29, 2009.

The EPA estimates that the pollution control technology mandated by the settlements will reduce air pollution by more than 1,300 tons per year including a reduction in greenhouse gases equivalent to taking 7,600 cars off the road. The EPA also claims that the settlement will conserve enough natural gas to heat approximately 1,080 homes annually.

According to a spokesman for the Justice Department’s Environmental and Natural Resources Division, the settlements “not only obtain compliance with the law and control emission sources, but will reduce greenhouse gas emissions and bring more natural gas to the marketplace.”

The consent decrees will be subject to a 30 day public comment period before they are finalized. Proposed Consent Decree, 74 Fed. Reg. 19,984 (Apr. 30, 2009).

The adoption of this requirement by the NAIC confirms the growing interest in financial threats to the business community from climate change liability. As noted on prior blog entries, claims alleging damages from “greenhouse gas” emissions are expected to proliferate in the wake of the United States Supreme Court’s April 2007 ruling in Massachusetts v. US Environmental Protection Agency 127 S.Ct. 1438 (2007), that greenhouse gases are air pollutants under the federal Clean Air Act and states have standing to sue. Indeed, there already are a number of lawsuits being pursued by various State Attorney Generals against power companies and automobile manufacturers, alleging that greenhouse gas emissions from their activities and products contribute to global warming and harm the states’ environment, economies and citizens. See California v. GMC C06-05755 MJJ, 2007 U.S. Dist. LEXIS 68547 (N.D. Cal. Sept. 17, 2007).

What Others Are Saying About the Disclosure Requirements

Following the adoption of this requirement by the NAIC, the Wall Street Journal reported that, “[e]nvironmental activists wanted insurers to have to disclose specific information about how their businesses might be threatened by climate change, said Andrew Logan, director of the insurance program at Ceres, a Boston-based environmental group involved in the talks. The activists believe such disclosures will help them press their case in Washington for a tough federal cap on carbon emissions.”

The same article went on to report that, “[s]ome carriers aren’t happy with the regulators’ decision. David Kodama, director of policy analysis for the Property Casualty Insurers Association of America, which represents more than 1,000 insurance companies, said his group is concerned that insurers that provide climate-risk information could face lawsuits alleging that their information isn’t detailed enough.”

What Are the Disclosure Requirements?

With respect to the particulars of the disclosure, the NAIC developed the Insurer Climate Risk Disclosure Survey to assist regulators in assessing an insurer’s risk assessment and management efforts. The Climate Risk Disclosure Survey requires that insurers answer eight questions in good faith, but that the insurers are not required to provide information that is “immaterial to an assessment of financial soundness,” and they are not required to provide quantitative information, and commercially sensitive, proprietary, or forward looking information. The Survey requests information regarding climate change and the company’s: 1) plans for assessing, reducing or mitigating its emissions; 2) policy for risk and investment management; 3) process for identifying climate change-related risks and business impacts; 4) current and anticipated climate change risks; 5) investment strategy response to climate change impacts; 6) steps to encourage policy holders to reduce losses caused by climate change-influenced events; 7) steps to engage key constituencies on climate change, and 8) action to manage climate change risks including the use of computer modeling. These disclosures should provide good insights to risks insurance companies are insuring as more businesses face liability from environmental events such as floods, tropical storms, and the like.

Looking Forward to More Disclosure

Given that disclosure is “right around the corner” and the intertwined relationship between insurance companies and policyholders, investors, and regulators, it is likely that all of these parties will be evaluating the new disclosure requirements and its impact on risk mitigation, regulation, and litigation.

AB also remanded the following for reevaluation: MDEQ’s source impact modeling for SO2, PM2.5 (particulate matter), and carbon monoxide, to base the modeling on “worst-case” emissions; BACT analysis of CO2 and NO2 emissions; calculus of PSD increments; and preconstruction monitoring of the site. The EAB denied review of MDEQ’s BACT analysis of PM2.5 emissions, and of MDEQ’s response to concerns about wilderness and wildlife that may be affected by the emissions.

EAB’s remand regarding the BACT analysis of CO2 and NO2 suggests an end to the EPA’s prior stance, outlined in a December 2008 memorandum by former EPA Administrator Stephen Johnson, that CO2 emissions were not subject to regulation under the Clean Air Act. This memorandum came after EAB’s November 2008 decision in In re Deseret Power Electric Cooperative, in which EAB remanded a permit for a generating unit in Utah, ordering the issuing authority to reconsider whether to impose a BACT limit for CO2 emissions. Significantly, the Michigan decision orders the MDEQ to reconsider BACT analysis of CO2 in light of Deseret, but does not mention the Johnson memorandum. In fact, this February, new EPA Administrator Lisa Jackson announced that the EPA will reconsider Johnson’s memorandum.

In a related development, Michigan Governor Jennifer Granholm issued a clean energy directive in February, which has already resulted in other coal plant permits being put on hold.

In this instance, the issue arose during an appeal of EPA Region 8’s grant of a PSD permit on August 30, 2007, authorizing the construction of a waste-coal-fired electric generating unit near Bonanza, Utah (In re Deseret Power Electric Cooperative). In briefing submitted to the Agency’s Environmental Appeals Board, the Sierra Club argued that because the Supreme Court had found in Massachusetts v. EPA that carbon dioxide is an air pollutant under the Clean Air Act, and the EPA regulated carbon dioxide by imposing monitoring and reporting requirements, a PSD permit for the Bonanza facility must require Best Available Control Technology (“BACT”) for carbon dioxide emissions. Region 8 disagreed, arguing that the Clean Air Act phrase requiring BACT for “each pollutant subject to regulation” was ambiguous, and that the Agency had “historically interpreted the [ambiguous] term … to describe pollutants that are presently subject to a statutory or regulatory provision that requires actual control of emissions ….”

On November 13, 2008, the Environmental Appeals Board rejected both parties’ positions:

The Board rejects Sierra Club’s contention that the phrase “subject to regulation” has a plain meaning and that this meaning compels the Region to impose a CO₂ BACT limit in the permit. On the contrary, the Board finds that the statute is not so clear and unequivocal as to preclude Agency interpretation of the phrase “subject to regulation under this Act,” and therefore the statute does not dictate whether the Agency must impose a BACT limit ….

* * *

The administrative record of the Region’s permitting decision … does not support the Region’s view that it is bound by an Agency historical interpretation of “subject to regulation” as meaning “subject to a statutory or regulatory provision that requires actual control of emissions of that pollutant.” The Region did not identify … any Agency document expressly stating that “subject to regulation under this Act” has this meaning.

Although the Board concluded that the matter should be remanded to Region 8 so that it could reconsider a CO₂ BACT limit, the Board also suggested that the Agency might be best served through “an action of nationwide scope, rather than through this specific permitting proceeding.”

EPA’s recent partial grant of the Sierra Club petition stated that EPA would publish a Notice of Proposed Rulemaking in the near term to open the interpretative memorandum and the Environmental Appeals Board’s determinations to public comment. Although the Administrator refused to stay the memorandum, she did strongly suggest that it could not be used as support for interim permit decision making on a state level:

In the meantime, the Agency emphasizes a point noted in the memorandum itself: the memorandum does not bind States issuing permits under their own State Implementation Plans. In addition, given the Agency’s decision to grant reconsideration … other PSD permitting authorities should not assume that the memorandum is the final word on the appropriate interpretation of Clean Air Act requirements.

This uncertainty created by the former Administration’s interpretative memorandum and the current EPA’s move away from that interpretation will be a critical issue to watch.

Under EPA’s existing Prevention of Significant Deterioration (PSD) rules, new and modified projects in areas that have acceptable air quality must install costly best available control technologies or “BACT” if the construction could cause an increase in the emissions of “pollutants.” The decision does not mandate industry to install BACT to meet greenhouse gas emission limits. Relying on the recent U.S. Supreme Court ruling in Massachusetts v. EPA, the ruling only requires the Region to develop and adequate record for its decision that does not rely on the “historical agency interpretations” regarding the regulation of CO2.

The EAB decision prominently recognizes the national importance of the climate change issue. The EAB ruling cautions that EPA “would be better served by the Agency addressing the interpretation [of CO2 regulation] in the context of an action of nationwide scope, rather than through this specific permitting proceeding.” Nevertheless, the decision clears the way for the Obama administration to impose new limits on CO2 emissions through the administrative process and permitting decisions. The Obama administration might use this decision and its administrative authority under the Clean Air Act as leverage to obtain sensible climate change legislation. The enormous cost and delay of applying PSD permitting and BACT with regard to CO2 emissions to existing facilities on construction projects of all sorts involving energy, infrastructure, and general industrial expansion would be disastrous in this sharply down economy. Nearly every large facility construction project would trip the 250 ton per year major source category if CO2 is regulated under the current Clean Air Act, causing years of delay in permitting and huge costs of retrofitting existing facilities. If Congress does not quickly address climate change through legislation, the EAB has shown through the Deseret decision that the EPA will.