Environmental Law Alert: DC Circuit Upholds EPA's Greenhouse Gas Rules

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In a decision released this morning, the DC Circuit upheld EPA's approach to regulating greenhouse gases under the major new source review for the prevention of significant deterioration program ("PSD"), the Title V program and the vehicle emission standards program. The suit challenged three rulemakings: (1) EPA's "Endangerment Finding," in which it determined that greenhouse gases may "reasonably be anticipated to endanger public health or welfare," (2) EPA's "Tailpipe Rule," which sets emissions standards for cars and light trucks, and (3) EPA's "Timing and Tailoring Rules," which set alternate applicability standards and phase-in provisions for regulating greenhouse gases under new source review and Title V. The DC Circuit said that EPA acted reasonably in issuing the Endangerment Finding and the Tailpipe Rule. It dismissed all petitions challenging the Timing and Tailoring Rules for lack of jurisdiction. The decision is a huge win for EPA. Details of this case are summarized below, followed by our assessment of what this means to most industrial sources.

Endangerment Finding

The Endangerment Finding relates back to a 2007 U.S. Supreme Court case where the Court held that greenhouse gases from automobiles could be regulated as a pollutant by EPA, but it directed EPA to determine on the record whether greenhouse gases may "reasonably be anticipated to endanger public health or welfare." This is called the Endangerment Finding. EPA issued that finding, concluding that motor vehicle emissions "contribute to the total greenhouse gas air pollution, and thus to the climate change problem, which is reasonably anticipated to endanger public health and welfare."

Tailpipe Rule

The natural outgrowth of the Endangerment Finding was rules imposing greenhouse gas restrictions on automobiles. These rules were issued by EPA in May 2010 and took effect on January 2, 2011.

Timing and Tailoring Rules

The PSD and Title V federal operating permit programs are triggered based on emissions of regulated air pollutants. Although the Tailpipe Rule regulated only automobile greenhouse gases, EPA considered it adequate to trigger greenhouse gases as regulated pollutants for PSD and Title V purposes. However, those programs have 100 ton per year and 250 ton per year thresholds—quantities that make sense for traditional pollutants but are laughably low for greenhouse gases. In an attempt to inject a small bit of sanity into the idea of regulating greenhouse gases under the PSD and Title V programs, EPA issued a Timing Rule, which stated that greenhouse gases would not be considered "regulated" until the automobile standards took effect on January 2, 2011. EPA then issued its Tailoring Rule, which imposed 75,000 ton per year and 100,000 ton per year (CO2 equivalent) thresholds for greenhouse gases in addition to the traditional 100/250 ton per year (actual mass) thresholds.

The Litigation

As with any rules of this scope, the challenged rules contained something to offend everyone. As a result, environmental groups, states, industrial sources and trade associations all leapt into the litigation fray. The challengers to the Endangerment Finding were primarily states and industry. The DC Circuit held that in making the Endangerment Finding, EPA properly did not take into account policy concerns, such as the merits of the actions that result in greenhouse gas emissions. While this may seem absurd to normal people, the court felt that EPA's approach was neither arbitrary nor capricious. The court also rejected challenges to the evidence relied upon in making the Endangerment Finding, holding that EPA had adequate evidence on which to base its decision and that EPA was neither arbitrary nor capricious in issuing regulations notwithstanding uncertainty about the underlying science. Thus, the Endangerment Finding was upheld.

The court similarly upheld the Tailpipe Rule. The industry appellants argued that EPA failed to justify the Tailpipe Rule in terms of the risk identified in the Endangerment Finding and to show that the proposed standards "would meaningfully mitigate the alleged endangerment." The court dismissed these arguments, holding that EPA met its burden by finding that automobiles contributed in some fashion to the danger posed by greenhouse gases—even though the overall contribution from automobiles was very small. Because there was some contribution from automobiles and that contribution would be reduced as a result of the rule, the rule is adequately justified. As a result, the Tailpipe Rule was validated.

Perhaps the most important part of the decision was where the court dismissed challenges to the Timing and Tailoring Rules. These challenges involved a high stakes game of chicken by industry and several states. If EPA's Tailoring Rule were struck down and PSD applied to every source with 250 tons per year or more of greenhouse gases and Title V permitting applied to every source with the potential to emit more than 100 tons per year of greenhouse gases, the burden on the regulatory system would be completely overwhelming, and Congress would have to fix the problem. The first part of the decision upheld EPA's interpretation that by issuing automobile standards for greenhouse gases, greenhouse gases must now be considered a regulated air pollutant for industrial sources under PSD and Title V. The court applied an expansive interpretation of the Clean Air Act and seemed untroubled by the carryover of automobile regulation into stationary source regulation. The court dismissed the idea that only pollutants that cause local impacts and are amenable to regulation under our system of air quality standards are the pollutants to be regulated under the PSD. The program is broad enough, according to the court, to cover any regulated air pollutant. With these decisions made, the court was all set to address the merits and fundamental legality of the Timing and Tailoring Rules. Instead, the court held that it lacked jurisdiction to hear those challenges and refused to consider the merits of any arguments on the substance of the Timing and Tailoring Rules. This surprising punt was based upon the lack of any concrete harm demonstrated by a party in the case that resulted from the Timing and Tailoring Rules, which actually allow more time and more relaxed applicability thresholds for greenhouse gases than the underlying statute. As a result, the challenges to the Rules were dismissed without substantive discussion on the merits, so those rules are here to stay (absent the Supreme Court weighing in to the contrary).

Finally, the court refused to decide the tangential issues raised by appellants over EPA's approach to state implementation plan and federal implementation plan requirements triggered by the implementation of the Tailoring Rule. Other pending cases are the appropriate venues for those disputes.

So What Does This Mean?

With the issuance of this decision, two things appear plain. First, there will be an attempt by at least one of the appellants to get the Supreme Court to review the decision. Second, the PSD and Title V requirements for greenhouse gas emissions will continue under the Tailoring Rule. New and modified sources will have to continue to assess greenhouse gases as part of their new source review permitting process, and sources newly subject to Title V permitting as a result of greenhouse gas emissions will still need to submit their applications by July 1, 2012. A contrary decision would have created tremendous confusion for the regulated community. So in a way this decision leaves sources with the new normal initiated by the rules almost two years ago.

It is important to note what this decision does NOT mean. This decision does not affect the three-year deferral of biomass CO2 emissions. That deferral continues in place. Nor does the decision affect the suits, led by the state of Texas, challenging the state implementation plan and federal implementation plan rules that EPA issued in the wake of the Tailoring Rule. All of these rules are subject to separate challenges that will be decided another day.

If you have any questions about the content of this alert, please contact a key contributor.

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Key Contributors

Martin K. Banks
Matthew Cohen
Krista K. McIntyre
Allison C. Smith
Thomas R. Wood
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