In a closely-watched case, the Environmental Appeals Board (the "Board")1 of the Environmental Protection Agency ("EPA") has remanded a Prevention of Significant Deterioration ("PSD") permit issued by EPA Region 8 (the "Region") for a proposed new waste coal-fired electric generating unit in Utah. The decision does not require EPA to include an emissions limit for CO2 in air permits. Instead, it requires the Region to reconsider on remand whether or not to impose a CO2 best available control technology ("BACT") limit in the permit, and to develop an adequate record for its decision either way, including opening the record for public comment. The Board emphasized that because the case presents an issue of nationwide interest, the Region should consider whether the application of BACT to CO2 would be better determined by an action of nationwide scope (through rulemaking or legislation) rather than through the specific permit proceeding. No matter how it is addressed, this puts the question of whether and how the EPA will regulate CO2 from power projects squarely on the shoulders of the EPA under the Obama administration, or on the incoming Congress. In the meantime, it amplifies the current uncertainty surrounding the question of whether fossil fuel-fired power projects must control CO2 emissions and further adds to the difficulty of permitting such projects.

Background

As part of its nationwide efforts to halt the development of new coal plants, the Sierra Club challenged the PSD permit issued on August 30, 2007 to Deseret Power Electric Cooperative ("Deseret") on the grounds that the Region erred by not requiring a BACT emission limit for CO2. The Clean Air Act (the "Act") prohibits the issuance of a PSD permit unless it includes best available control technology to control the emissions of pollutants "subject to regulation under this Act". (In April 2007, the U.S. Supreme Court in Massachusetts v. EPA, 549 U.S. 497 (2007) held that CO2 is a "pollutant" within the meaning of the Act, but did not address whether it is a pollutant "subject to regulation" under the Act.)

The Region contended that CO2 is not a pollutant "subject to regulation" under the Act and therefore the Act does not require BACT for CO2. The Region claimed that it was bound by EPA’s historical interpretation that pollutants "subject to regulation under this Act" include only those pollutants which are presently subject to a statutory or regulatory provision requiring the actual control of their emissions. Such an interpretation would leave out CO2 because it is presently only subject to monitoring and reporting of emissions levels under EPA’s Part 75 regulations, and not subject to statutory or regulatory provisions that require actual control of CO2 emissions. The Region contended in the alternative that the CO2 monitoring and reporting requirements, which are set out in section 821 of the 1990 Public Law, are not regulations "under this Act" because Congress did not intend the 1990 Public Law to amend, and thus become part of, the Act.

The Board’s Decision

The Board rejected both of the Region’s arguments. As to the Region’s first argument, the Board found little support in the administrative record for a historical Agency interpretation of the phrase "subject to regulation under this Act" as meaning "subject to a statutory or regulatory provision that requires actual control of emissions of that pollutant." As to the second, the Board pointed out that the argument was clearly at odds with the Agency’s own prior statements regarding the relationship between section 821 and the Act.

The Board also rejected the Sierra Club’s position that the plain meaning of the statute renders CO2 "subject to regulation" under the Act and therefore requires a CO2 BACT limitation. It found no evidence of a Congressional intent to require EPA to apply BACT to pollutants, such as CO2, that are subject only to monitoring and reporting requirements under the Act. The Board further concluded that the meaning of the term "subject to regulation under this Act" is not so clear and unequivocal as to preclude EPA from exercising discretion in interpreting the statutory phrase. The Board held that because of these ambiguities, the Region has discretion to determine the meaning of the term "subject to regulation under this Act", and left it to the Region to make such a determination.2

The Board thus largely sidestepped making any conclusive determination itself as to whether CO2 is a pollutant requiring the application of BACT. It did, however, signal a clear preference for a resolution of this issue at the national level – suggesting that the question be resolved through rulemaking or legislation – by stating that "since these same issues have been raised in a multiplicity of permit proceedings, an action of nationwide scope would seem more efficient than addressing the issues in each individual proceeding."

Significance of the Decision

By remanding the decision to the Region and suggesting that the issue would best be resolved by a determination that is national in scope rather than through individual decisions in project-specific permit proceedings, the Board is placing the question squarely with the incoming Obama administration to be resolved administratively by EPA, legislatively by Congress, or a combination of the two.

The Board’s decision follows in the wake of the U.S. Supreme Court’s April 2007 decision in Massachusetts v. EPA in which the Supreme Court established that CO2 is an "air pollutant" and directed EPA to determine whether greenhouse gases may reasonably be anticipated to "endanger public health or welfare" within the meaning of the Act (a so-called "endangerment finding"). Such a finding would essentially require EPA to regulate greenhouse gases in the same manner as it regulates other air pollutants. In response to the Supreme Court's mandate, in July 2008, the EPA released a 500-page Advanced Notice of Proposed Rulemaking ("ANPR") for Regulating Greenhouse Gases in which the Agency sought comments on a broad range of options for regulating greenhouse gases. (The period for submitting comments to the ANPR closes on November 28, 2008.) In an introduction to the ANPR, EPA Administrator Stephen Johnson stated his view that "the Clean Air Act, an outdated law originally enacted to control regional pollutants that cause direct health effects, is ill-suited for the task of regulation of global greenhouse gases."

On the legislative side, there is still no comprehensive federal legislation addressing greenhouse gas emissions. President-elect Obama recently stated that, early on in his administration, he intends to push for passage of comprehensive "cap and trade" legislation for greenhouse gases, have the EPA take action to regulate greenhouse gases through the Act, or both.

In the meantime, the Deseret decision adds to the current uncertainty surrounding the question of whether fossil fuel-fired power projects must control CO2 emissions and further clouds the permitting process. Moreover, if BACT is deemed to be required, it remains uncertain what constitutes BACT for CO2 emissions from coal-fired power plants at the present time – high efficiency plants, integrated gasification combined cycle ("IGCC"), carbon capture and storage, other technologies? Given the evolving state of the technology, the answer to that question is sure to spark heated debate.

Click here to view the EPA's Advance Notice of Proposed Rulemaking: Regulating Greenhouse Gas Emissions under the Clean Air Act.