Despite lack of regulation, power plant permit applicant voluntarily agrees to limit greenhouse gases
On June 23, 2009, the Bay Area Air Quality Management District (BAAQMD) released for public comment a revised draft Clean Air Act permit for the Russell City Energy Center power plant, which – apparently for the first time ever – includes limits on the emission of greenhouse gases. Taking on what some might consider an unnecessary legal obligation, Calpine Corporation, majority owner of the plant to be built in Hayward, CA, agreed to limit heat input and mass emissions of carbon dioxide (CO2), methane (CH4), and nitrous oxide (N2O), expressed as “CO2-equivelents” (CO2E).
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.
EAB remands several issues in Ripley Heating Plant dispute; decision suggests regulation of CO2 under Clean Air Act
On February 18, the Environmental Appeals Board (EAB) issued a decision remanding several issues and denying review of others, in response to a Sierra Club petition regarding a permit authorizing Northern Michigan University to construct a boiler at the Ripley Heating Plant on its Marquette, Michigan Campus. The Michigan Department of Environmental Quality (MDEQ) issued the permit on May 12, 2008, after issuing a draft permit for public review and comment in October 2007. On June 13, 2008, the Sierra Club filed a petition for review which challenged seven aspects of the MDEQ decision and response to comments. In particular, the Sierra Club petition addressed several aspects of MDEQ’s analysis of Best Available Control Technology (BACT), as well as MDEQ’s air quality analysis. The EAB held that MDEQ “clearly erred” in selecting SO2 limits, because it did not follow the EPA New Source Review Manual or other relevant guidelines.
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.
New EPA Administrator partially grants Sierra Club petition toward Agency regulation of CO2 in PSD permits
On February 17, 2009, US EPA Administrator Lisa Jackson partially granted a petition by the Sierra Club to reconsider the prior EPA Administrator’s late 2008 interpretative memorandum excluding carbon dioxide, and other monitored but uncontrolled pollutants, from Prevention of Significant Deterioration (“PSD”) permit program requirements. While Administrator Jackson opted against a complete stay of the memorandum, she announced her intention to open a public comment period regarding the PSD issue. This clearly is a move by EPA toward potential regulation of carbon dioxide as a “pollutant” under the Clean Air Act, which the Bush Administration had infamously resisted. A Sierra Club organizer was quoted as saying that the Jackson letter “should halt virtually all new coal plant development until the EPA decides how to handle global warming pollution.”
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 ….
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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.
EAB ruling in In re Deseret Power Electric Cooperative opens door to a new regulatory era on climate change
The USEPA Environmental Appeals Board (EAB) issued a potentially groundbreaking decision in In re Deseret Power Electric Cooperative (PSD Appeal No. 0703) by ruling that EPA Region 8 was incorrect when it exempted a new coal fired unit at an existing Utah power plant from limiting carbon dioxide emissions and remanded the permit decision to the Region to reopen the record and reconsider its refusal to impose limits on carbon-dioxide emissions. In its November 13 decision the EAB rejected the Region 8 contention that it was not required to regulate carbon dioxide because the greenhouse gas, while a “pollutant” under the Clean Air Act, was not subject to current regulatory standards. (“We hold that this conclusion is clearly erroneous because the region’s permitting authority is not constrained in this matter by authoritative agency interpretation.”)
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.
