By: Mike Nasi, Jacob Arechiga, and Travis Wussow

On September 22, 2009, the U.S. Environmental Protection Agency (EPA) finalized a rule that will require the mandatory reporting of greenhouse gases (GHG Reporting Rule) from large sources of GHG emissions throughout all sectors of the economy. The rule directly affects large industry and manufacturing, but will also capture large hospitals, schools, agricultural operations, and any large facility with a boiler, process heater, incinerator, turbine or internal combustion engine emitting more than 25,000 tons-per-year of carbon dioxide or carbon dioxide equivalents.  Affected companies will have to move quickly because the rule requires monitoring and recordkeeping to begin on January 1, 2010, with a possible three-month extension, and the submission of a first annual report on emissions by March 31, 2011.  For further details, please review Jackson Walker L.L.P.’s Environmental Practice Group’s summary HERE.

The GHG Reporting Rule is also critically important because it represents the first attempt the EPA has made at regulating GHGs and is expected to set the groundwork for more intrusive GHG regulation.

Next Steps for Regulation of GHGs by EPA

The Consolidated Appropriations Act of 2008 ordered the EPA to create a rule requiring the mandatory reporting of GHG emissions.  In the preamble to the final GHG Reporting Rule, however, the EPA explicitly rejected reliance on the Appropriations Act and instead promulgated the rule under Clean Air Act (CAA) Sections 114 (recordkeeping, inspections, monitoring, and entry) and 208 (motor vehicle information collection).  These sections provide broad authority for the EPA to require information that will serve as their basis to carry out a wide variety of CAA provisions that have not previously been invoked to support GHG regulation.  This likely signals EPA’s legal strategy as it embarks on a suite of rules targeting GHG emissions, including: (1) finalization of the EPA’s proposed “endangerment finding” which states that GHG emissions endanger the public health and welfare; (2) proposal of the Corporate Average Fuel Economy (CAFE) standards which will be the first time carbon dioxide is directly regulated under the Clean Air Act; and, (3) the Prevention of Significant Deterioration (PSD) “tailoring” rule which will increase emission levels of GHGs required to trigger the PSD permitting process.  Even with the PSD tailoring rule, these new developments create a three step process that could result in the PSD regulation of GHG emissions for a very large percentage of businesses in the U.S.

1.  Final “Endangerment Finding”

On April 17, 2009, the EPA issued a proposal for a formal finding that GHG emissions endanger the public health and welfare.  This finding, if finalized, would both give the EPA the authority to regulate GHG emissions through the Clean Air Act and would force EPA to regulate GHG emissions under certain Clean Air Act programs.  Although the EPA has not stated when it plans to finalize its proposed “Endangerment Finding,” we expect this action any time between now and the end of 2009.

2.  Corporate Average Fuel Economy (CAFE) standards will trigger GHG regulation for the entire U.S. economy.

The final “Endangerment Finding” will give EPA the authority to regulate GHGs under the Clean Air Act.  Signaling the forthcoming final “Endangerment Finding,” on September 15, 2009, the EPA proposed a new set of rules that would require automakers to produce vehicles with better fuel economy and that emit less carbon dioxide.  These rules will go into effect for model year 2012.  These rules, while significant in and of themselves, are critically important because of their impact on other Clean Air Act programs.

The PSD permitting program applies to all “regulated air pollutants.”  To be a regulated air pollutant, it is EPA policy that only pollutants that are “controlled” under the Clean Air Act will be subject to the PSD program.  This policy was first expounded in the controversial “Johnson Memo” in December 2008 by then EPA Administrator Stephen Johnson.  On September 30, 2009, this policy was reaffirmed by EPA under Administrator Lisa Jackson.  Therefore, if, or when, the CAFE standards are finalized, CO2 will be considered a “controlled pollutant,” which will automatically trigger the PSD permitting process for all emission sources meeting the other PSD requirements.   

3.  PSD “tailoring” rule as an attempt to limit the effects of CAFE on PSD permitting program

The PSD permitting program automatically applies to any air pollutant that exceeds the emission threshold of 100 or 250 tons per year, depending on the source.  Once that threshold is exceeded, sources must obtain a PSD permit and also install the Best Available Control Technology (BACT) to reduce emissions of the pollutant.  For GHGs, even very small sources will exceed the 100 or 250 tons per year threshold.

The EPA has proposed its “tailoring” rule increasing the threshold to 25,000 metric tons per year.  For large emitters of GHGs, this provides no protection from PSD requirements.  Furthermore, it is still unclear whether the EPA has authority to issue this rule as it may be found to inappropriately conflict with the Clean Air Act itself.  If the “tailoring” rule is not upheld, and the EPA follows through on the CAFE rule, then literally thousands of new sources, including schools, restaurants, and commercial and residential buildings, will be required to obtain air quality permits and install potentially expensive emissions control technology for GHGs.

For more information on these rules, please contact Mike Nasi at 512.236.2216 or mnasi@jw.com, Jacob Arechiga at 512.236.2049 or jarechiga@jw.com (bar admission pending), or Travis Wussow at 512.236.2296 or twussow@jw.com.