Tuesday, September 23, 2014
Climate Policy Watch - Analysis

Despite High Court GHG Ruling, Some States May Keep Tailoring Rule Limits

Despite the Supreme Court's recent ruling scrapping the basis for EPA's "tailoring" rule -- which set permit thresholds for greenhouse gas (GHG) emissions -- some states may retain the rule's limits in their EPA-approved state implementation plans (SIPs) because the high court ruling does not require them to be changed, legal experts say.

The high court's ruling in Utility Air Regulatory Group (UARG) v. EPA could create a patchwork of state requirements, industry sources say, and add to the uncertainty for regulators and entities that are seeking permits to operate or construct new or modified facilities.

"It is really unsettling. How will they roll back [these requirements] with the states that included them in SIPs or passed legislation? EPA can address this but cannot fix it. States must act," one industry source says.

Another industry source says some SIP-approved states, like those in the Northeast, may choose to retain their current approaches. "You are going to see some states that are going to have their state GHG program untouched by UARG, because UARG is only speaking to the feds under the Clean Air Act. Certainly, states can be more restrictive," the source says.

But other states that opposed the GHG rules -- including Kansas, South Dakota, Texas and others -- are likely to seek to remove those requirements from their SIP. However, it could be difficult for EPA to approve those repeal efforts due to the fact they would likely violate Clean Air Act anti-backsliding provisions. "Traditionally, when you want to remove something from a SIP, EPA says no because that is backsliding," the source warns.

The issue is further complicated because EPA may be able to retain those portions of the tailoring rule -- such as its "Step 1" provisions -- where it set thresholds consistent with the high court's holdings, some industry lawyers say.

In its majority ruling, written by Justice Antonin Scalia, the high court June 23 vacated portions of the tailoring rule -- which generally sought to raise or "tailor" statutory permit thresholds intended for conventional pollutants -- where the agency had sought to require prevention of significant deterioration (PSD) permits and associated best available control technology (BACT) reviews for new or modified facilities based solely on their GHG emissions.

While the court upheld the agency's right to require permits for GHGs, it said the agency could only do so in those cases where sources trigger permit requirements due to emissions of conventional pollutants. The court held that the air act "neither compels nor permits EPA to adopt an interpre­tation . . . requiring a source to obtain a PSD or Title V permit on the sole basis of its potential greenhouse-gas emissions."

Many observers have already indicated that the ruling creates a regulatory morass for the agency because the justices advised the agency to set a "de minimis" threshold for when GHGs do not need to be regulated in PSD permits but did not provide much, if any, legal guidance on how to do so.

Step 1

Some lawyers from Beveridge & Diamond, including two former top EPA lawyers, now say the agency may be able to retain Step 1 of the tailoring rule, which only required sources that would otherwise be subject to PSD for conventional pollutants -- known as "anyway" sources -- that emitted more than 75,000 tons per year to limit GHGs in their permits. [I]t may be premature to rule out the tailoring rule in its entirety -- at least before EPA speaks to the issue," say the lawyers, including former EPA general counsels Scott Fulton and Jonathan Cannon.

EPA could seek to keep Step 1 of the tailoring rule alive, they add, by noting that the court "did not expressly vacate" the rule but rather invalidated it "to the extent that it treats GHGs as PSD gateway pollutants. . . . Step 1 is, in essence, the construct supported by Justice Scalia and the majority," suggesting EPA could try to preserve Step 1 "as a bridge to future rulemaking."

The lawyers say that EPA may seek to retain Step 1 because it would ease administrative burdens at a time when the agency is focused on completing its pending GHG performance standards for new and existing power plants.

So far, EPA and states have said little on how to proceed. States are broadly indicating they have not yet determined what their next steps are.

And EPA says it will issue guidance on the issue but is providing no details on timing or content. "EPA is reviewing the impacts of the court's decision," an agency spokeswoman says.

The agency also posted a notice on its website which says, "As we better understand the full impact of the decision on PSD and Title V permitting regulations, EPA will provide relevant guidance and information on GHG permitting requirements through this website."

One Iowa source says EPA regional officials have said that states should wait and see, indicating the agency might submit clarifying questions to the Supreme Court. The source says the region did not provide any information on what kind of questions EPA would ask, but said those would be in addition to guidance EPA has said it would issue to states. EPA Region 7 officials could not be reached for comment.

In the face of the legal uncertainty, the agency has already had to delay action on the last remaining GHG SIP-approval -- for Texas -- and the high court ruling may make the state's need for a GHG SIP moot if regulators there believe they have all the authority they need to address GHGs in major source PSD permits, the second industry source says.

An EPA spokeswoman says the agency's earlier federal implementation plan for regulating GHGs in permits in Texas "technically" remains in place.

The Lone Star State is the only SIP-approved state that has yet to implement its own GHG program. Other states that were initially resistant to EPA GHG permit rules, which took effect in early 2011, had their SIPs approved and are not yet indicating what they intend to do.

Other States

Other than Texas, EPA finalized the last outstanding GHG SIP for South Dakota in April, though the agency disapproved part of the plan that would have automatically revoked the SIP if the state won the UARG case or if a future administration scraps the program. EPA argued in the final notice that SIP revisions must be approved by the agency so it cannot approve an automatic revocation of the GHG rules.

EPA also referred to a clause in Tennessee's GHG SIP that it approved: "In the event of a court decision that triggers (or likely triggers) application of Tennessee's automatic rescission provisions, EPA intends to promptly describe the impact of the court decision on the enforceability of its GHG permitting regulations."

A South Dakota source notes the state opted not to challenge the EPA denial, skipping a mid-June deadline to appeal in federal court, and would only say the state "is still considering its options on" the next steps to take regarding its SIP.

A source with Kansas, another opponent of the EPA GHG program, says the state "will review EPA's guidance as part of the consideration process when evaluating options such as SIP revisions." Kansas does not have any pending permit applications that would be affected by the UARG ruling, the source adds.

While these opponents are considered likely to seek to revoke the tailoring rule from their SIPs, other states are expected to keep their GHG rules, such as some states in the Northeast with other GHG programs, potentially creating a patchwork program, the second legal expert says.

SIP-approved states that would be unable to keep the tailoring rule GHG requirements are those that have "no-more-stringent" laws that prohibit them from having rules that are stricter than the federal requirements.

EPA issues PSD permits in delegated states where it will be obligated to comply with the high court holding. Delegated states include Washington, Minnesota, Illinois, Massachusetts, Hawaii and the District of Columbia, as well as certain types of permits in California, Nevada, Arizona and New Jersey, according to EPA's website.

In addition to questions about how EPA will proceed and whether some states will retain tailoring rule limits, sources have raised a number of other questions about the impact of UARG.

Foley and Lardner partner Mark Thimke said on a July 11 webcast that another unresolved issue is the fact that industry "may be able to scale back the scope of GHG BACT" when modifications are made at existing facilities by arguing that "only the modified unit should be subject to BACT and not the entire" plant.

And a third industry source asks about permits that were issued prior to UARG that include GHG limits that now would not need them. "Are those limits still valid? How does EPA deal with this mess retroactively," the source asks.

The second industry source says there are several facilities in Texas that have such permits and that they have not decided what to do with them. "There is probably no downside to keeping [the permit], even if you don't need it," the source says. -- Dawn Reeves (This e-mail address is being protected from spambots. You need JavaScript enabled to view it )


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