By: Michael Nasi and Travis Wussow

On December 7, 2009, the U.S. Environmental Protection Agency (EPA) finalized its “endangerment finding” for greenhouse gases (GHGs).  This finding is a legal determination by the EPA that GHGs endanger the public health and welfare of the United States and that EPA has the authority to regulate GHG emissions under the Federal Clean Air Act.  The endangerment finding was announced on the eve of the climate change negotiations in Copenhagen, Denmark, which will aim to develop an international climate change framework to replace the Kyoto Protocol. 

Although the endangerment finding does not itself regulate greenhouse gases, the finding authorizes the EPA to issue separate regulations for GHG, setting the stage for regulation of GHGs under the Clean Air Act in the future.  Below is a brief overview of the GHG-related regulations that EPA has finalized, is in the process of finalizing, and is expected to propose in the coming year.

1. EPA’s GHG Reporting Rule goes into effect January 1, 2010

On September 22, 2009, the U.S. 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. 

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

The next GHG-related regulation will likely be issued by the EPA in March 2010, when the EPA is expected to finalize its Corporate Average Fuel Economy (CAFE) standards.  The CAFE standards will go into effect for model year 2012.  This rule, while significant for the auto industry, is critically important for all sources of GHGs because it will trigger economy-wide regulation of GHGs through the Clean Air Act.  This trigger arises from the fact that the Prevention of Significant Deterioration (PSD) program requires all sources that emit “regulated air pollutants” to obtain a federally enforceable air permit and to install the Best Available Control Technology (BACT) to control the pollutants.  Greenhouse gases, which are not currently considered “regulated air pollutants” under EPA policy, will become “regulated” if and when the EPA finalizes the CAFE standards.

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

The PSD program automatically applies to any air pollutant that exceeds the emission threshold of 100 or 250 tons per year, depending on the type of source.  This is a very low threshold that would pull in many sources that had never before been required to obtain an air quality permit.  To mitigate this harsh result (and to reduce the amount of opposition to GHG regulations), the EPA has proposed a “tailoring” rule, which would require only sources that emit more than 25,000 tons per year of GHGs to obtain a PSD permit.  This rule will likely be finalized at the same time as the CAFE standards, in March 2010. 

However, it is unclear whether the EPA has the authority to issue the tailoring rule, as a federal court may find it to contradict the terms of the Clean Air Act.  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.

4.  Development of guidance for Best Available Control Technology

The EPA has formed a Climate Change Work Group made up of regulators, the regulated community, and environmental interest groups. The Work Group is currently preparing guidance to assist the EPA and States in analyzing what technologies should be considered Best Available Control Technology (BACT) for GHG emissions. This BACT analysis, which is conducted when a source applies for a PSD permit, involves an assessment of the technologies that are currently feasible, taking into account technical, energy, environmental, economic, and other cost considerations. Therefore, this guidance will play a critical role moving forward, because it will signal the EPA’s views on the GHG-reducing technologies that may be required to be considered or installed as a result of the BACT requirement in the PSD permitting process.

The Climate Change Work Group’s website may be viewed HERE.

5. Development of New Source Performance Standards for source categories

Finally, the EPA has signaled that it will revise and develop New Source Performance Standards (NSPS) for GHG emissions.  These NSPS would impose additional limits on the GHG emissions that a new or modified facility may emit and would be issued for individual source categories.  The Waxman–Markey American Clean Energy and Security Act, which passed the U.S. House of Representatives, would have stripped the EPA’s authority to develop NSPS that limit GHG emissions from stationary sources (aside from the statutorily mandated NSPS for coal-fired power plants).  On the other hand, the Kerry–Boxer Clean Energy Jobs and American Power Act, which is pending in the U.S. Senate, would leave intact EPA’s authority to develop NSPS for large stationary sources of GHG emissions.  It is therefore unclear whether the final form of any climate change legislation passed by the U.S. Congress will allow the EPA to regulate GHGs under the Clean Air Act.

For further details, please review the Jackson Walker L.L.P. Environmental practice area’s summary e-Alert HERE and summary of the rule HERE.

For more information on these rules, please contact Michael Nasi at 512.236.2216 or mnasi@jw.com or Travis Wussow at 512.236.2296 or twussow@jw.com.