States Challenge 2011 Settlement Requiring EPA to Propose and Finalize a Rule Regulating Existing Coal-Fired Power Plants

On August 1, 2014, several states petitioned the United States Court of Appeals for the District of Columbia Circuit for review of a final settlement agreement between United States Environmental Protection Agency and various other states, governmental entities, and private organizations. Pursuant to the settlement agreement, EPA committed to proposing and finalizing a rule requiring states to regulate existing coal-fired power plants under Section 111(d) of the Clean Air Act ("CAA"). On June 18, 2014, EPA issued a proposed rule regulating greenhouse gas emissions from existing coal-fired power plants under Section 111(d).

In the petition for review, the petitioner-states argue that certain  intervening events following execution of the settlement agreement, but before EPA issued its proposed rule of June 18, 2014, rendered unlawful EPA's regulation of existing coal-fired power plants under Section 111(d). Namely, the petitioners argue that EPA's February 26, 2012 rule finalizing regulations for stationary sources, including coal-fired power plants, under the hazardous air pollutants program of Section 112 of the CAA, did not permit EPA to regulate those same stationary sources under Section 111(d) because the United States Supreme Court held in American Electric Power, Inc. v. Connecticut, 131 S. Ct. 2527 (2011), that EPA may not regulate a pollutant under Section 111(d) if existing stationary sources of the pollutant in question are regulated under Section 112 of the CAA. 

Despite the fact that the settlement was finalized in 2011 and the CAA provides for only a 60-day review period, the petitioners argue that their petition is timely under a recognized exception to the rule when a claim is based solely on grounds occurring after the statutory 60-day review period. Petitioners contend their claim did not ripen until EPA issued its June 2, 2014 legal memorandum setting out its final position regarding its purported legal authority to propose and adopt a rule for existing coal-fired plants under Section 111(d). 

Shortly after the petition for review was filed, on September 2, 2014, several private organizations and states that were parties to the original 2011 settlement agreement filed unopposed motions to intervene, arguing, among other things, that as parties to the settlement agreement, they have a legitimate interest in participating in an action challenging that settlement agreement. The motions to intervene were granted on October 2, 2014. 

The parties currently are debating the timeline for the case moving forward. On September 3, 2014, the petitioner-states filed a motion to set a consolidated briefing schedule and to expedite consideration. In the motion, they assert that the states will suffer irreparable injury if the case is not expedited because, due to the complex nature of EPA's Section 111(d) rulemaking, states as well as stakeholders must begin immediately to develop and implement procedures pursuant to the proposed power-plant rule. On the same day, EPA filed a motion to extend time to file dispositive motions and record, arguing that there are substantial jurisdictional issues that need to be briefed. Each party has filed an opposition to the other party's scheduling motion. The court has not yet ruled on the motions, so the schedule in this matter is still unclear. In the interim, however, EPA will continue moving forward with its Section 111(d) rulemaking.

— Daniella Einik (+1.202.879.3775, deinik@jonesday.com)

Colorado District Court Vacates Approvals for Mining Exploration Due to Failure to Adequately Consider Greenhouse Gas Emissions

On June 27, 2014, the United States District Court for the District of Colorado held that several federal agencies violated the National Environmental Policy Act ("NEPA") for failing to disclose projected greenhouse gas ("GHG") emissions associated with expanded mining exploration activities in the North Fork Valley in western Colorado.High Country Conservation Advocates v. U.S. Forest Serv., No. 13-cv-01723-RBJ (D. Colo. June 27, 2014).

The environmental-group plaintiffs alleged multiple failures by the federal agencies to adequately disclose the effects of GHG emissions in environmental impact statements ("EISs") required by NEPA. One such failure related to lease modifications approved by the Bureau of Land Management and the U.S. Forest Service, which added new lands to a preexisting mine. While the EIS for the lease modifications contained anticipated economic benefits, it did not discuss the impacts of anticipated GHG emissions, stating that they could not be quantified or predicted. The court held that including estimated benefits while excluding estimated costs due to GHG emissions was arbitrary and capricious, particularly when "the social cost of carbon protocol" is a tool available to estimate such costs. 

Plaintiffs also alleged failures to adequately disclose the effects of GHG emissions relating to the approval of a rule that provided an exemption for temporary road construction to enable coal mining and mining exploration in the North Fork Valley ("North Fork Exception to the Colorado Roadless Rule"). The first alleged failure associated with this rule was that, although the EIS indicated that increased methane emissions were a foreseeable result of the rule, it did not quantify the emissions or analyze their impacts because those emission rates purportedly were too speculative and depended on mine-specific factors that could not be understood until actual exploration occurs. The court held that the failure to calculate the reasonably foreseeable GHG emissions associated with the rule was arbitrary because (i) "[s]uch projections were possible as demonstrated by an expert opinion that used data from existing North Fork mines to extrapolate expected emissions under the extended mine lives enabled by the [rule]"; and (ii) the EIS included "a detailed economic analysis of the benefits associated with the rule.

Plaintiffs further asserted that the EIS failed to estimate GHG emissions associated with combustion of coal facilitated by the rule. The agencies argued that they did not include an estimate because (i) it would be too speculative, given varying degrees of power plant efficiency; (ii) new technology, like carbon capture and sequestration, might be available by the time the coal is burned; and (iii) "the overall amount of coal consumed by the marketplace would remain unchanged because there are perfect substitutes for North Fork Coal." The court found these explanations unsupported by the record. Given that the EIS contained detailed estimates of the amount of coal to be mined, it would not be too speculative to estimate the emissions. In addition, the court found it was improper to rely on "unsupported assumptions that future mitigation technologies will be adopted." It also found that the increased supply of coal would affect the demand for coal relative to other fuel sources, such that the reasonably foreseeable effect of emissions from the burning of that additional coal must be analyzed. 

Plaintiffs lastly argued that the EIS for the North Fork Exception to the Colorado Roadless Rule failed to address an expert report submitted by plaintiffs to the federal agencies. NEPA requires federal agencies to respond to "any responsible opposing view." 40 C.F.R. § 1502.9(b). The expert report submitted by plaintiffs argued that consumers would be unable to find a perfect substitute for the coal, and, therefore, approval of the rule would lead to increased GHG emissions. The court held that the expert report was a "responsible opposing view," and the agencies' failure to address it was a violation of NEPA. Although the court held that the agencies violated NEPA, it postponed its decision on remedies to allow the parties to meet and confer and submit additional briefing. After briefing was completed, on September 11, 2014, the court ordered that the lease modifications be vacated, finding that "vacation will best serve the deliberative process mandated by NEPA." With respect to the North Fork Exception to the Colorado Roadless Rule, the court found that it could be severed from the rest of the Colorado Roadless Rule. Accordingly, the court vacated the North Fork Exception to the Colorado Roadless Rule and allowed the remainder of the rule to stand. The impact of the court's decision on future rulemaking regarding the North Fork Valley remains to be seen. 

— Jane B. Story (+1.412.394.7294, jbstory@jonesday.com)

Texas, Wyoming, and Industry Groups Ask DC Circuit to Rehear SIP Rule Case

Over the last two years, the D.C. Circuit has dismissed several challenges to EPA's GHG rules, including lawsuits brought by states and industry groups relating to the timing and methods employed by EPA in requiring revisions to State Implementation Plans ("SIPs") to incorporate GHGs. As previously reported in The Climate Report, in July 2013, the U.S. Court of Appeals for the District of Columbia dismissed challenges to the SIP rules brought by Texas, Wyoming, and industry groups because the petitioners lacked Article III standing. See Texas v. EPA, 726 F.3d 180 (D.C. Cir. 2013). In reaching its decision, the D.C. Circuit concluded that Prevention of Significant Deterioration ("PSD") permitting requirements in Clean Air Act § 165(a) are self-executing and apply directly to major stationary sources irrespective of an applicable SIP. Accordingly, the court held, among other things, that vacating the challenged rules would not redress the states' alleged injury to their quasi-sovereign interests in regulating air quality within their borders because the claimed injury was caused by the automatic operation of Section 165(a), rather than the challenged rules.

In September 2014, the states and industry groups petitioned the D.C. Circuit for a rehearing and requested that the D.C. Circuit reverse its earlier ruling, citing a conflict with the U.S. Supreme Court's decision in Utility Air Regulatory Group v. EPA, 134 S. Ct. 2427 (2014). In Utility Air Regulatory Group, the Supreme Court held that Section 165(a) is not self-executing, meaning that rulemaking was a necessary step to PSD permitting of GHG emissions. According to petitioners, the Supreme Court's decision undermined EPA's interpretation of the statute as mandating a permitting process for GHG emissions and undercut the D.C. Circuit's reasoning for dismissing the SIP cases for lack of standing. Petitioners also argue that EPA must conduct new rulemaking before regulating GHGs under the PSD provisions, giving the states an additional three years to revise their SIPs. On October 6, 2014, the D.C. Circuit requested responses to the petition for rehearing from EPA and intervenor parties.

— Brigid DeCoursey (+1.202.879.3651, bdecoursey@jonesday.com)