By Mike Nasi and Jacob Arechiga

Last week saw two developments regarding EPA's regulation of greenhouse gases. On February 24, 2014, the Supreme Court of the United States heard oral arguments in Utility Air Regulatory Group v. the Environmental Protection Agency and consolidated cases (UARG v. EPA). The case concerned industry and state challenges to EPA's greenhouse gas (GHG) permitting regulations, including whether EPA's stationary-source GHG permit requirements complied with the Federal Clean Air Act (FCAA).

While the Court considers EPA's GHG permitting rules, EPA is proceeding with its development of GHG New Source Performance Standards (NSPS). NSPS are nationwide standards that apply to particular source types. EPA's first GHG NSPS targets new power plants, with a planned June adoption date, at which time it intends to propose an NSPS regime for existing power plants under Section 111(d) of the FCAA. EPA has also stated its intention to move on to refineries and numerous other industries, perhaps even commercial facilities or other comparatively small emitters of GHGs.

U.S. Supreme Court Oral Argument

The Supreme Court UARG v. EPA posed a narrow question to the parties: whether EPA's determination that regulation of GHG emissions from motor vehicles appropriately triggered permitting requirements for "stationary sources" of GHGs under the Clean Air Act's prevention of significant deterioration (PSD) and Title V permitting programs. Stationary sources can be virtually any facility, structure, and/or building that emits certain air pollutants over threshold levels set at either 250 or 100 tons per year (tpy), depending on the pollutant. In the case of GHG emissions, these threshold levels would have brought even small restaurants, schools, and businesses into EPA's permitting regime. Claiming that this would lead to an "absurd result," EPA crafted a series of rules that modified the traditional regulation of pollutants under the Clean Air Act, including most significantly, the "tailoring rule," where EPA moved the emissions threshold permitting trigger from 250/100 tpy to 75,000 tpy for GHGs, in most instances.

While the Court may have posed a narrow question on EPA's determination to regulate emissions from stationary sources, oral arguments took a broader tone. The Court looked to key and fundamental elements of EPA's rulemaking, including the legitimacy of the tailoring rule. Justices were skeptical of both industry/state petitioner and EPA arguments on whether EPA took appropriate action. This included Justice Kennedy, the traditional "swing vote" of the Court noting that he "couldn’t find a single precedent that strongly supported" the EPA's position.

Despite some skepticism on EPA's method of developing GHG permitting programs, the Court did not take the opportunity to discuss limiting the Court's decisions in Massachusetts v. EPA and American Electric Power Company v. Connecticut – the two decisions that underpin EPA's authority to regulate GHGs. Further, the Court did not review the threshold issues of whether EPA can control GHG emissions from mobile sources or whether the Clean Air Act contemplated or authorized EPA's control of GHG emissions from stationary sources.

Importantly, while this case was not a challenge of the new power plant NSPS rule, the decision could significantly impact how EPA proceeds with its NSPS GHG rules. The Court at the oral argument did not discuss the validity of any specific components of an NSPS rule, including EPA's reliance on an assumed commercial availability of CCS technology. It will likely not do so in its ultimate written decision. However, it is still quite possible that the Court will provide a clearer picture on the degree of deference that EPA has in promulgating GHG rules and/or provide instructive language on potential limitations to EPA's authority and methods in regulating GHGs through NSPS regulations and beyond.

Oral arguments are often not an accurate indicator of how the Court will decide a case, with Justices sometimes ruling in complete opposite of the apparent positions taken in oral argument. Therefore, we will not know the ultimate fate of EPA's greenhouse gas permitting program in this country until this summer, when the Court is expected to publish its opinion. What is clear, though, is that the Court's decision will likely significantly impact the regulation of greenhouse gases in America for years to come and affect future legal challenges, including to EPA's NSPS rules.

NSPS Regulation of GHGs: Extension of Comment Period for EPA's New Power Plant Rule Proposal and Associated Notice of Data Availability on Carbon Capture & Sequestration Technology

On February 26, 2014, EPA issued an extension on the comment periods for its new power plant NSPS and an associated Notice of Data Availability (NODA) on information explaining EPA's methodology in determining the commercial availability of carbon capture and sequestration (CCS) technology. Comments will now be due May 9, 2014.

We have previously summarized the content of EPA's new power plant NSPS last fall, available here. This included a detailed discussion on EPA's imposition of emissions limits that require the installation of Carbon Capture and Storage (CCS) technology at any newly constructed coal-fired power plants.

Although the rule proposal was unofficially released in September 2013, it was not officially published in the Federal Register until January 2014. One of the major controversies surrounding this proposal is EPA's assertion that CCS has been adequately demonstrated.

The Clean Air Act requires that, before a technology can be used to establish emissions limits under an NSPS, the technology must be established as a best system of emissions reduction (BSER) that has been adequately demonstrated. There has been significant debate, including hearings at the U.S. Capitol, whether CCS meets this standard. Two central elements to this debate have been: 1) CCS has yet to reach commercial full-scale operation at any power plant in the world and 2) EPA has relied, almost exclusively, on under-construction projects that have received significant federal funding, including funding provided under the Energy Policy Act (EPACT) of 2005.

The EPACT includes, in part:

"No technology, or level of emission reduction, solely by reason of the use of the technology, or the achievement of the emission reduction, by one or more facilities receiving assistance under this Act, shall be considered to be…adequately demonstrated for purposes of section 111 of the Clean Air Act (42 U.S.C. 7411)."

EPA published the NODA, and associated technical support document, to address its reliance on EPACT funded projects. EPA expanded on the justifications outlined in the rule proposal that CCS is adequately demonstrated. This includes focusing on the use of the word "solely" in EPACT. In EPA's interpretation, the term "solely" means that EPACT does "not preclude EPA from relying on the experience of such facilities in conjunction with other information" and that EPA "may rely on such projects for its BSER determination if there is additional evidence supporting such a determination." As part of the comment period that has now been extended to May 9, EPA is seeking comment on the EPACT provisions, its interpretation of those provisions, and the process it used to establish CCS as BSER.

Numerous comments will be filed on both sides of this issue, including whether EPACT prevents EPA from relying on EPACT-funded projects to establish BSER. However, this issue likely won't be settled for at least a few years, as it will take time to finalize the rule and then proceed through litigation. If EPA does go forward with CCS as a the selected technology, it will likely become a requirement for numerous other industries, potentially including refining, chemical manufacturing, and others.

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For more information, please contact Mike Nasi (mnasi@jw.com or 512.236.2216) or Jacob Arechiga (jarechiga@jw.com or 512.236.2049).