Air Quality Law Alert: Supreme Court Curbs EPA's GHG Permitting Authority

Environmental

6/23/2014
Earlier today, in Utility Air Regulatory Group v. EPA Utility Air Regulatory Group v. EPA (PDF), the U.S. Supreme Court rejected the U.S. Environmental Protection Agency’s (“EPA”) attempts to require Prevention of Significant Deterioration (PSD) or Title V permitting for sources that are major solely for greenhouse gas (GHG) emissions. On the other hand, the Supreme Court affirmed EPA’s authority to require a Best Available Control Technology (BACT) determination for GHG emissions, when a source triggers PSD permitting for another pollutant. The decision will have immediate impacts on industrial source permitting. Read on for Stoel Rives’ initial take on what it all means.

EPA’s “Tailoring Rule”

Decades ago Congress defined specific thresholds of 100 tons per year (tpy) and 250 tpy for new source review major sources (commonly referred to as “PSD”). In addition, Congress mandated that the Title V permitting program applies in most locations if a source has the potential to emit 100 tpy of a regulated air pollutant. Several years ago the Supreme Court held that EPA has the authority to regulate GHG emissions. EPA subsequently determined that it was compelled to permit GHG emissions from PSD and Title V major sources, and that the statutory PSD and Title V major source thresholds did not reasonably apply to GHG emissions. EPA ”tailored” the statutory thresholds in its Tailoring Rule to create a new 100,000 tpy major source threshold unique to GHG. In addition, EPA established a PSD threshold for emissions increases of GHG at major sources, over which the source would trigger a GHG BACT review (75,000 tpy). In the case decided today, petitioners asked the Supreme Court whether EPA had the authority to tailor the federal Clean Air Act. And the Supreme Court said no.

Big Win for the Regulated Community

The Supreme Court concluded that EPA was “mistaken” in thinking that the Clean Air Act compelled PSD and Title V permitting, and it confirmed that applying the Tailoring Rule “would overthrow” the CAA structure and design. The Supreme Court disagreed with EPA's conclusion that “any air pollutant” must be permitted under the Act, and observed that “EPA has routinely given it a narrower, context-appropriate meaning.” Use of the phrase throughout the Act, the Court said, is “not a command to regulate, but a description of the universe of substances EPA may consider regulating under the Act’s operative provisions.” Interpreting the phrase to encompass only those pollutants that can be sensibly regulated at the PSD and Title V statutory levels and to exclude others, like GHG emissions, make the PSD and Title V permitting programs work as enacted by Congress. The Supreme Court recognized that, if applied to GHG emissions, the statutory thresholds would expand the universe of major sources to an extreme and place excessive demands on limited government resources. But the opinion firmly communicated EPA’s lack of authority to rewrite the Act’s applicability thresholds. An agency “has no power to ‘tailor’ legislation to bureaucratic policy goals by rewriting unambiguous statutory terms.” When EPA replaced the major source statutory numbers with its own for GHG, it exceeded the bounds of its authority. EPA’s disregard for the prescribed statutory thresholds prompted the opinion’s author, Justice Scalia, to say: “We are not willing to stand on the deck and wave goodbye as EPA embarks on this multiyear voyage of discovery...an agency may not rewrite clear statutory terms to suit its own sense of how the statute should operate.” In short, the Court concluded that “EPA overstepped” its authority. As a consequence of the Supreme Court’s decision today, the Tailoring Rule provisions are invalid for those sources subject to PSD or Title V permitting requirements solely because GHG emissions exceed EPA’s major source thresholds.

As for ‘anyway’ sources -- those sources that are subject to PSD permitting for other non-GHG pollutants -- GHG BACT remains a reality. Today’s decision affirms the requirement to conduct BACT review for GHGs when a source is otherwise subject to PSD. The Supreme Court concluded that EPA can require GHG BACT review, if the proposed major source or major modification triggers PSD for a non-GHG pollutant. The Court summarized sideboards from EPA’s guidance on GHG BACT reviews in an attempt to limit “free rein” of regulatory applications of BACT in this distinct context. Referencing established PSD law and practice, the Supreme Court also observed that the 75,000 tpy threshold set by EPA to trigger BACT review was not established as a true de minimis level for GHG, and that the agency must justify its de minimis level for GHG. This aspect of the ruling potentially creates an unintended black hole for PSD sources: under the established PSD rules BACT applies to pollutants emitted above a prescribed significant emissions rate set for each regulated pollutant, but according to the opinion no such rate is set presently for GHG. When a significant emissions rate is not prescribed for a regulated pollutant under the established program, then any emissions increase can trigger BACT review. So, until EPA justifies “on proper grounds” its selection of 75,000 tpy as the GHG significant emissions rate, any emissions increase of GHG emissions at an ‘anyway’ source could potentially trigger BACT. This would seem at odds with the Supreme Court’s unequivocal view that “EPA may require an ‘anyway’ source to comply with greenhouse-gas BACT only if the source emits more than a de minimis amount of greenhouse gases.” So until EPA justifies its significant emissions rate, some uncertainty lingers for PSD sources.

Conclusion: The Tailoring Rule Got Trimmed

EPA lacked authority to rewrite the Act through the Tailoring Rule. Though some States may be slow adopters to the Court’s ruling and others may choose to impose permitting programs more stringent than the Act, air quality permitting under PSD or Title V based solely on GHG emissions is impermissible under the Act. For ‘anyway’ sources, BACT review is here to stay. In light of the presumably unintended black hole described above, the legality of final GHG BACT determinations now in place may be in question, and pending or future GHG BACT reviews face some uncertainty in the absence of a true de minimis rate.

Your air quality team will continue to monitor developments in response to today’s ruling. In the meantime, please call or drop us an email with any questions.

Tom Wood at (503) 294-9396 or trwood@stoel.com  
Krista McIntyre at (208) 387-4239 or kkmcintyre@stoel.com  
Matt Cohen at (206) 386-7569 or mcohen@stoel.com  
Geoff Tichenor at (503) 294-9389 or gbtichenor@stoel.com
Allison Smith at (916) 319-4759 or acsmith@stoel.com  
Rachel Cox at (206) 386-7654 or rhcox@stoel.com


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