On September 30, 2009, the US Environmental Protection Agency (“EPA”) took an important next step toward regulating greenhouse gas emissions from stationary sources. The agency’s 416-page proposed rule, which EPA terms the “tailoring rule” (the “Proposal” or “Tailoring Rule”), sets the stage to begin regulating stationary sources emitting 25,000 tons per year of CO2 equivalent (“CO2e”) greenhouse gases (“GHGs”) under two programs central to the Clean Air Act (the “Act”)—the Prevention of Significant Deterioration (“PSD”) and Title V operating permit programs. EPA does so in the context of proposing to establish through the Tailoring Rule new thresholds for GHGs that are significantly higher than the statutory-required thresholds for pollutants under the two programs. The Act’s PSD program applies to sources emitting 100 or 250 tons per year (depending on the source), and Title V permitting requirements apply to emitters of 100 tons per year, of a “regulated pollutant.” EPA is proposing to increase those thresholds, for GHG emissions only, to 25,000 tons per year.

The Proposal signals EPA’s intent to consider GHG emissions in its permitting decisions for stationary sources under the PSD program and to require controls (best available control technology, or “BACT”) for facilities meeting the threshold emissions requirement. Fossil fuel-fired power plants, refineries, cement plants and municipal solid waste landfills (methane emissions), among other industrial facilities, will be affected.

The broader context in which EPA’s effort to regulate GHGs continues to unfold includes the administration’s desire to participate in global climate change talks this December in Copenhagen without the appearance of a US “business-as-usual” stance, and its hopes for a legislative solution to climate change. It may not be a coincidence that the Proposal was released on the same day the Kerry-Boxer climate change bill was introduced in the Senate. The Proposal, coming as it does on the heels of the September 21, 2009, decision by the Second Circuit Court of Appeals in State of Connecticut v. American Electric Power Co., Inc.,1 allowing common law nuisance suits to proceed against the defendant owners of electric generation facilities alleged to be harming the environment by their emissions of GHGs, and EPA’s September 22nd issuance of its final GHG Mandatory Reporting Rule,2 is another signal that regulation of GHG emissions from large stationary sources either by legislation, regulation, litigation or a combination of approaches, appears inevitable.

Following the Proposal’s publication in the Federal Register, which is expected to occur soon, there will be a 60-day comment period.

Why EPA is Acting Now

EPA’s action is necessary because after it finalizes its proposed Endangerment Findings, which it is expected to do soon, it plans to promulgate regulations under the Act to control GHG emissions from motor vehicles through its “light-duty vehicle rule” by the end of March 2010. In fact, in mid-September EPA and the Department of Transportation’s National Highway Traffic Safety Administration issued a joint proposal to establish CO2 emissions standards for light duty vehicles.3 A final light-duty vehicle rule will automatically trigger PSD and Title V requirements because GHGs will then be considered a “regulated pollutant” for purposes of those programs.4

EPA expects to promulgate [the light-duty vehicle rule] by the end of March 2010. …[I]t is EPA’s position that new pollutants become subject to PSD and title V when a rule controlling those pollutants is promulgated (and even before the rule takes effect). Accordingly, as soon as GHG become regulated under the light-duty motor vehicle rule, GHG emissions will be considered pollutants“ subject to regulation” under the CAA and will become subject to PSD and Title V requirements. (Proposal at 46)

If the statutory threshold for regulated pollutants of 100/250 tons per year were to be applied, the PSD and Title V requirements would subject millions of previously unregulated entities— big box stores, enclosed malls, hotels, apartment complexes, mid-sized office buildings, even commercial kitchens—to onerous requirements under the Act.5 Such a result, EPA acknowledges, would lead to regulatory gridlock: “If PSD and title V requirements apply at the applicability levels provided under the CAA, state permitting authorities would be paralyzed by permit applications in numbers that are orders of magnitude greater than their current administrative resources could accommodate.” (Proposal at 1) (Applying the statutory threshold levels “would create enormous administrative burdens for permitting authorities that would far exceed their current capacity to administer the PSD and Title V programs.”) (Proposal at 48)

The Proposal does not mention the political consequences of such a result, but they are no doubt an important, if unstated, consideration.

Tailoring Rule’s Phased Approach

The Proposal does not completely shut the door on the eventual regulation of small GHG sources. Rather, the agency will defer its decision on whether and how best to regulate smaller sources until it has experience regulating GHG emissions from larger sources. The Tailoring Rule would adopt a phased approach to implementing proposed applicability thresholds for both the PSD and the Title V programs. The first phase, which would last six years, would establish a temporary level for the PSD and Title V applicability thresholds at 25,000 tons per year on a CO2e basis. During this five-year period, EPA would study what it terms the “administrability” issues. EPA would then conduct another rulemaking, to be completed by the end of the sixth year, in which it would promulgate, as the second phase, revised applicability levels, that could potentially lower the applicability threshold to bring in smaller GHG sources.

One unresolved question is whether EPA has the authority to change by rule what the statute itself clearly requires: regulation of air sources that emit 100/250 tons per year of a “regulated pollutant” (here, GHGs). In support of its action, EPA relies on the doctrines of “absurd results” and “administrative necessity,” and EPA devotes a substantial portion of the Proposal to a discussion of the two doctrines and why they justify the Tailoring Rule. (Proposal at 62-154). The absurd results doctrine applies where the literal application of a statute will produce a result demonstrably at odds with the intentions of the drafters, in which case the intention of the drafters, rather than the strict language controls. (See United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 242 (1989)) The administrative necessity doctrine authorizes an agency to depart from literal statutory requirements if those requirements are impossible to administer. Instead the agency can adjust the requirements so as to make them susceptible to administration. These limited exceptions to the general rule that an agency cannot depart from the unambiguous requirements of a statute are not often invoked, and many observers question whether the courts will uphold EPA’s action based on these, or other, justifications.

By structuring its actions as a discretionary deferral of the statutorily-required regulation of smaller sources, as opposed to a decision ruling out regulation of those sources now, EPA likely seeks to enhance the Tailoring Rule’s chances of passing judicial muster given the high likelihood of its being challenged in the courts.

Effect of Regulation of Large GHGs Sources Under the PSD and Title V

Even with the Tailoring Rule, the PSD and Title V programs will nevertheless capture a large number of power plants, refineries, cement plants, steel mills and other industrial facilities. EPA earlier estimated that by moving the threshold from 100/250 tons per year to 25,000 tons per year, the permitting rule would still cover approximately 13,000 facilities nationwide. PSD will impose more substantive requirements, and will likely prove more onerous, than Title V.

The PSD program is a preconstruction review and permitting program for new or modified major stationary air sources6 in an attainment area: a region whose air meets health-based ambient air standards set by EPA, or one where no ambient air standards have been established for the pollutant in question (which would be the case with GHGs). PSD applies not only to new construction in attainment areas, but also to existing sources (otherwise grandfathered under the Act) which undergo a “major modification”.

A principal requirement of the PSD program is that a new major source (or an existing source undertaking a major modification) apply best available control technology (“BACT”) to control the emission of pollutants. BACT is determined on a case-by-case basis taking into account, among other factors, the cost and effectiveness of the control. The Proposal makes no attempt to define what would constitute BACT for CO2 or other GHGs for any particular air source, be it an oil refinery, fossil fuel-fired power plant or cement plant. Given the evolving nature of technology, what constitutes BACT for a particular facility is sure to spark further debate.

Conclusion

The proposed Tailoring Rule is yet another sign of the Obama Administration’s intent to regulate GHG emissions and to address the causes of climate change, and is further proof that EPA’s April 2009 Proposed Endangerment Findings will have implications well beyond the regulation of GHG emissions from motor vehicles alone. EPA’s effort to tailor the threshold requirements for PSD and Title V can be seen as an attempt to inject through rulemaking some flexibility (and common sense) into a statute that EPA candidly concedes is ill-suited for the regulation of GHGs. Both President Obama and Administrator Jackson have stated their preference for comprehensive national legislation to address climate change. It may be that the Proposal, with its continued threat of the imposition of the Act’s command-and-control regime on a number of GHG sources nationwide, is yet another action intended, at least in part, to increase pressure on industry, states and other stakeholders to support the passage of more carefully-tailored GHG national legislation. In the meantime, the Proposal is another strong signal to US stakeholders and the world that the Obama Administration is committed to addressing climate change.