On September 30, 2009, the United States Environmental Protection Agency (EPA) announced a proposed rule that will, if finalized, prescribe how the Clean Air Act (CAA) permitting requirements are applied to stationary sources of greenhouse gas (GHG) emissions. EPA Administrator Lisa Jackson announced the proposed rule, “Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule (‘Proposed Tailoring Rule’),” in a speech to the Second Annual Governors’ Global Climate Summit. The proposed rule is called a “tailoring rule” because it “tailors” the application of the CAA’s permitting requirements so that only larger sources of GHG emissions are impacted. Notably, this rule, for the first time, explains how the CAA permitting requirements will be applied to GHG emissions from stationary sources, after much debate about whether the CAA does, could, or should apply to those emissions.

Stationary Sources To Be Subject to PSD and Title V Requirements As Early As March 2010

Under the CAA, “major sources” of regulated pollutants are required to obtain pre-construction permits for new construction or modifications as part of the new source review (NSR) program.1 In areas that are in attainment of prescribed air pollution levels, facilities are required to obtain prevention of significant deterioration (PSD) permits before modified or new sources are constructed.2 In addition, all “major sources” of air pollution are required to obtain a Title V operating permit, including for new and modified sources.3 Title V operating permits must be renewed every five years.4 A facility is determined to be a “major source” of air pollution if it has the potential to emit regulated pollutants above a threshold level. If the threshold level is exceeded, under both PSD and Title V permit requirements, facilities must use best available control technology (BACT) to control emissions and abide by emissions limits for any regulated pollutant emitted in significant quantities.

Currently GHGs are not considered by EPA to be regulated NSR pollutants; thus, under EPA’s interpretation of the CAA, facilities are not required to obtain permits or use BACT measures for GHGs.5 However, on September 15, 2009, EPA announced a separate proposed rule to regulate GHG emissions from light-duty vehicles under the CAA.6 EPA anticipates that the light-duty vehicle GHG regulations will come into effect as early as March 2010.7 When that proposed rule comes into effect, GHGs unquestionably will be regulated pollutants and will therefore trigger the above-described PSD and Title V requirements.

The CAA’s “default” major source applicability threshold is 100 or 250 tons per year (tpy), depending on the type of facility, of any regulated pollutant. Thus, absent the Proposed Tailoring Rule announced on September 30, once the GHG regulations for light-duty vehicles take effect, any facility that emits more than 100/250 tpy of GHGs (a regulated pollutant) will be subject to PSD and Title V regulations.8 EPA has determined that if GHG thresholds remain at 100/250 tpy, the number of PSD and Title V permits, and the associated costs of issuing those permits, would increase significantly.9 Currently, EPA and the states issue, on average, 280 PSD permits every year. If GHGs had a threshold of 100/250 tpy, EPA estimates that almost 41,000 new and modified facilities per year would be subject to PSD permit review.10 Likewise, there are currently 14,700 existing Title V permits nationwide. This number would increase to 6 million if the GHG threshold remains at 100/250 tpy.11 EPA believes that increasing the GHG threshold above 100/250 tpy is an administrative necessity, because if it fails to do so, the regulation of GHGs would be a significant burden to EPA and the regulated community.12

The Proposed Tailoring Rule

The main effect of the Proposed Tailoring Rule is to create new “threshold” and “significance” levels for the six primary GHGs.13 The new proposed threshold for these GHGs is 25,000 tpy of carbon dioxide equivalent (CO2e), and the proposed significance levels is between 10,000 and 25,000 tpy CO2e.14

The Proposed Tailoring Rule would increase the threshold level for all six GHGs to 25,000 tpy CO2e. This would mean that unless a facility emits 25,000 tpy of CO2e (or emits 100/250 tpy of other regulated pollutants), it will not be subject to CAA permitting requirements. The proposed rule also sets GHG significance levels to between 10,000 and 25,000 tpy CO2e (depending on public feedback). This would mean that a major source of any pollutant that emits more than the 10,000/25,000 tpy CO2e significance level will have to use BACT for the control of its GHG emissions.

EPA’s Proposed Tailoring Rule also includes four “streamlining” techniques which EPA believes will allow for more efficient and less costly regulation of GHG emissions.15 The proposed streamlining techniques are:

  1. Redefining “potential to emit” as it is used to evaluate whether a facility is above the threshold level. EPA proposes that a facility’s actual GHG emissions, not its potential emissions, should be used to determine whether a source exceeds a threshold level. (A source’s potential to emit is currently used for pollutants regulated under the CAA’s permitting program). Additionally, EPA proposed creating rules establishing how to calculate emissions for various source categories, so as to make GHG emission estimates simpler and more uniform.
  2. Creating presumptive BACT for small sources of GHGs. This would involve creating rules that establish what the best available control technology is for a standard GHG emission unit. BACT is usually determined on a case-by-case basis; thus, having a presumptive BACT will save smaller sources the cost of conducting an extensive BACT analysis.
  3. Creating general permits that would cover numerous, essentially identical, sources, saving smaller sources the cost of getting individual permits.
  4. Creating electronic permitting systems to further increase efficiency.

EPA believes that these streamlining measures will take three to four years to develop and implement fully. In the meantime, the proposed threshold and significance levels for GHG emissions would be put into effect for five years. At the end of the five-year period, EPA will evaluate the threshold and significance levels and within one year determine whether those levels should be changed.

Impact of the Proposed Tailoring Rule

EPA estimates that under the Proposed Tailoring Rule, 68% of national CO2e GHG emissions will be regulated under the CAA permitting requirements. EPA estimates that, once GHGs are regulated under the light-duty vehicle program, industry and government will save a great deal of money by increasing the GHG threshold and significance levels. Under the Title V program, EPA estimates that industry will save more than $38 billion over the first six years in permitting expenditures by having a threshold of 25,000 tpy CO2e as opposed to 100/250 tpy. Permitting agencies will save another $15 billion over six years. Likewise, under the PSD program, EPA estimates that industry will save more than $900 million annually and permitting agencies will save $249 million annually. Even with the savings represented in these estimates, there will be significant costs of addressing GHG emissions in PSD and Title V permit programs in the first place.

The Proposed Tailoring Rule does not itself make GHG emissions subject to CAA permitting requirements; thus, it will have no effect unless and until the light-duty vehicle GHG regulations take effect or GHGs are considered regulated pollutants under the CAA in some other way. If the light-duty vehicle GHG regulations do take effect, any facility which emits GHGs above the proposed threshold of 25,000 tpy CO2e will be required to obtain a PSD permit for any new construction or major modification. Facilities that previously were not required to have Title V permits, but emit GHGs above the finalized threshold amount, will be required to apply for a Title V permit within one year of the date the lightduty vehicle GHG regulations take effect.16 Facilities that have a Title V permit when the rule is finalized will not have to immediately revise their Title V permits, but would have to include applicable GHG emissions when their Title V permit is renewed.17

EPA’s recent announcement of several proposed rules with respect to stationary sources’ reporting and permitting requirements for GHG emissions may prompt Congress to act with respect to legislation for a comprehensive GHG emissions program. EPA Administrator Jackson has stated on several occasions that the Administration’s preferred approach is to have GHGs regulated other than through the CAA. However, when announcing the Proposed Tailoring Rule at the Governors’ Summit, Administrator Jackson said that, while “[c] omprehensive [climate change] legislation from the U.S. Congress is the next frontier,…” EPA is taking its current actions because it is “not going to continue with business as usual while we wait for Congress to act.”

EPA will accept comments on the Proposed Tailoring Rule for 60 days following the publication of the proposed rule in the Federal Register. A public hearing may also be held if one is requested by a member of the public.

The full text of the proposed “Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule” is available on EPA’s website.