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Updated: Environmental Appeals Board Opens Door to Regulation of CO2, but EPA Puts on the Brakes

Beveridge & Diamond, P.C., December 19, 2008

Originally published on November 26, 2008

On November 13, 2008, the Environmental Appeals Board (“EAB” or the “Board”) held that EPA must consider regulating carbon dioxide (CO2) emissions limits as part of a permit review under its Prevention of Significant Deterioration (“PSD”) program.  In re Deseret Power Electric Cooperative, PSD Appeal No. 07-03 (Nov. 13, 2008).  EPA Region 8 initially issued a PSD permit without requiring the Best Available Control Technology (“BACT”) for CO2, claiming that EPA’s past policy precluded regulation of CO2; Sierra Club challenged the permit, arguing that Region 8 not only could, but must require BACT for CO2.  The EAB disagreed with both parties: while the Board found that the Clean Air Act (“CAA” or the “Act”) does not compel the Region to impose CO2 limits in PSD permits, it also concluded that EPA’s past policies did not prohibit it from doing so.  Id. at 63.  Because Region 8 had not evaluated whether it should impose BACT for CO2, the Board ordered the Region to reconsider the permit.  Id. at 63-64.  This decision will likely invigorate the efforts by the Sierra Club and others to compel regulation of CO2 under existing law. 

A.        Statutory and Procedural Background 

The Clean Air Act (“CAA” or the “Act”) requires preconstruction permits for new major sources or major modifications located in areas that have attained the national standards for specific “criteria” pollutants.  42 U.S.C. §§ 7472, 7475(a)(1).  As part of the permitting process, the facility must install “the best available control technology [BACT] for each pollutant subject to regulation under this chapter emitted from, or which results from, such facility.”  Id. at § 7475(a)(5).  Historically, BACT determinations have focused on pollutants that are subject to emissions standards under the Act (e.g., SO2, NOx, CO, etc.).  Because EPA has never identified CO2 as a “criteria” pollutant under CAA § 108, it has never developed specific emissions standards for CO2 emissions.  As a result, CO2 emissions have never been considered in BACT determinations. 

Recent events have changed the playing field.  In April 2007, the Supreme Court held that CO2 was an “air pollutant,” and that EPA must therefore evaluate whether to regulate it under the Act.  Massachusetts v. EPA, 549 U.S. 497 (2007) (“Under the clear terms of the [CAA], EPA can avoid taking further action only if it determines that greenhouse gases do not contribute to climate change or if it provides some reasonable explanation as to why it cannot or will not exercise its discretion to determine whether they do.”).  While EPA has made progress toward complying with the Supreme Court’s instructions, the pace has been slow; rather than issuing a decision, EPA instead chose to issue an Advanced Notice of Proposed Rulemaking seeking comment on the issue, and has made it clear that further action will not proceed under the current Administration.  See, e.g., 73 Fed. Reg. 44,354, 44,354-55 (July 30, 2008).  Environmentalists, however, have not been content to sit on the sidelines and await EPA’s ultimate determination.  Taking heart from the Massachusetts holding, they have looked for ways to press for additional regulation of CO2 under existing law.  EPA, meanwhile, continues to insist that no regulation is required unless and until either it completes the review ordered by the Supreme Court, or Congress amends the CAA to compel regulation of CO2.  

The Deseret Power decision is at the forefront of this skirmish.  On August 30, 2007, EPA Region 8 issued a PSD permit to Deseret Power Electric Cooperative (“Deseret Power” or the “facility”) authorizing the construction of a new waste-coal fired electric generating unit in Uintah County, Utah.[1]  Id. at 1, 5, n.1.  During the permit review, the Sierra Club asked the Agency to require BACT for CO2 emissions; Region 8 refused, claiming that it was bound by EPA’s historical interpretation that CO2 was not regulated.  The Sierra Club then petitioned for review, alleging that Region 8 violated the Act by failing to require BACT for CO2, in violation of Sections 165(a)(4) and 169(3).[2]  Id. at 1, 5, 12 (citing 42 U.S.C. §§ 7475(a)(4), 7479(3)).  Ultimately, the Board disagreed with both parties.    

B.        The Board’s Decision

The central issue before the Board concerned whether CO2 is a “pollutant subject to regulation" under the CAA for which the Region must impose BACT limits.  Id. at 27.  Sierra Club argued that the Board was obligated to impose CO2 BACT limits because CO2 is a “pollutant subject to regulation” under the Act.  Id.  Even though EPA has never imposed emissions limits on CO2, Sierra Club pointed out that Section 821 of the 1990 CAA Amendments required CO2 monitoring, which has been codified in 40 C.F.R. Part 75.[3]  Sierra Club further pointed to Massachusetts v. EPA, 549 U.S. 497 (2007), which established CO2 as an “air pollutant” under the CAA.  Id. at 1, 6, 8, 14, 23-28, 33.    

Region 8, in turn, argued that it did not have authority to impose CO2 BACT limits in PSD permits, because it was constrained by the Agency’s historical interpretation of the phrase “subject to regulation” as referring only to pollutants that are subject to actual emissions control standards.  Id. at 1-2, 9, 28-29.  Because the CO2 monitoring requirements do not require actual control of CO2 emissions, and because Section 821 of the 1990 Amendments is not technically part of the CAA, Region 8 argued that CO2 is not a “pollutant subject to regulation under this Act.”  Id.  The EAB disagreed with both parties.

            1.        Region 8’s Arguments

Region 8 relied on a variety of past documents to establish EPA’s “historical” interpretation, including EPA’s original 1978 PSD preamble, the 2002 NSR Rule, and memoranda addressing regulation of CO2 emissions under the Clean Air Act.  Id. at 35-63.  The Region further argued that Section 821 of the 1990 Amendments was not part of the Act, and that CO2 therefore could not be “subject to regulation” under the Act.  The Board rejected all of these arguments, characterizing them as, “at best, weak authorities upon which to anchor the Region’s conclusion . . . that its authority to require a CO2 BACT limit is constrained by an historical Agency interpretation of CAA sections 165 and 169.”  Id. at 53. 

1978 PSD Preamble.  First, Region 8 argued that the 1978 Preamble set forth a “final” determination that “pollutants subject to regulation” under the Act include only those pollutants that are subject to actual emissions controls.  Id. at 34, n.35 (citing 43 Fed. Reg. 26,388, 26,397 (June 19, 1978) (the “1978 Preamble”).  The 1978 Preamble states that the phrase “each pollutant subject to regulation under this Act” refers to those regulations in Subchapter C of Title 40 of the Code of Federal Regulations.  Deseret Power at 14, 38-39 (citing 43 Fed. Reg. at 26,397).  EPA’s 1978 Preamble then provides the categories of pollutants regulated under Subchapter C, all of which were subject to actual control requirements.  Id. at 39-40.  Accordingly, Region 8 argued that “subject to regulation” refers only to those pollutants that are subject to actual control requirements, and that its historical interpretation of the phrase was consistent with this list.  Id. at 40.   

The Board disagreed, finding that the 1978 PSD Preamble interprets the phrase “subject to regulation under this Act” to include “any pollutant regulated in Subchapter C of Title 40 of the Code of Federal Regulations for any source type.”  Id. at 3, 40-42.  The CO2 monitoring provisions were promulgated in Subchapter C, and expressly state that a violation of the monitoring requirements is a violation of the CAA.  Id. at 41.  The Board further noted that nothing in the Preamble indicated that the list of regulated pollutants was meant to be exclusive.  Id. at 40. 

2002 NSR Rule.  Second, the Region pointed to a similar list of “regulated NSR pollutant[s]” in EPA’s 2002 NSR Rule.  As with the 1978 preamble, Region 8 argued that because this list is limited to pollutants that are subject to actual emissions controls, pollutants that are subject only to monitoring requirements are not “regulated NSR pollutant[s].”  Id. at 3-4, 42-43, 48 (citing 67 Fed. Reg. 80,186 (Dec. 31, 2002)).  Again, the Board found that the 2002 rule did not explicitly limit the term “regulated NSR pollutant” to pollutants that are subject to actual emissions controls.  Id. at 43, 48.    

EPA Memoranda.  The Region pointed to two prior EPA memoranda that articulated the Agency’s historical position that CO2 is not a regulated pollutant under the Act, and therefore not subject to BACT limits: (1) a memorandum from Lydia N. Wegman, Deputy Director, Office of Air Quality Planning and Standards, EPA, Definition of Regulated Air Pollutant for Purposes of Title V (Apr. 26, 1993) (the “Wegman Memo”); and (2) a memorandum from Jonathan Z. Cannon, General Counsel, EPA, to Carol M. Browner, Administrator, EPA, EPA’s Authority to Regulate Pollutants Emitted by Electric Power Generation Sources (Apr. 10, 1998) (the “Cannon Memo”).  Id. at 4, 49-50. 

The Region argued that the Wegman Memo provides EPA’s historical interpretation that CO2 is not a regulated “air pollutant” under the Act, and that the addition of CO2 monitoring requirements in 1990 did not require a contrary conclusion.  Id. at 50-51.  The Board found, however, that the fundamental premise of this memo – i.e., that CO2 is not an “air pollutant” – was directly controverted by the later Massachusetts decision, which concluded that it is.  Id. at 50.  The Cannon Memo was even more summarily dismissed; while the Board acknowledged that that memo arguably supported the Region’s position, the EAB noted that EPA subsequently withdrew the memo.  Id. at 52.  Rather than demonstrating a clear, longstanding, consistent Agency position, the Board concluded that the EPA Memoranda in fact presented a confusing, inconsistent historical record of EPA’s position on CO2Id. at 50. 

Section 821 of 1990 CAA Amendments.  Finally, the Region argued that Section 821’s CO2 monitoring requirements are separate from the Act and do not dictate that CO2 is a regulated pollutant under the Act.  Id. at 55-57.  Acknowledging that Section 821 was enacted simultaneously with the 1990 CAA Amendments, Region 8 nevertheless argued that Congress unequivocally made it separate from the Act.  Id. at 9, 56-57.  The Board disagreed, concluding that the legislative history of Section 821 was unclear and did not show that Congress intended Section 821 to be separate from the Act.  Id. at 58-59.  The Board also observed that Region 8’s argument was inconsistent with EPA’s previous statements that violations of Section 821’s monitoring requirements are violations of the Act.  Id. at 9, 56-61.

            2.        The Sierra Club’s Arguments

While the Board rejected Region 8’s claims that it could not regulate CO2, it also rejected Sierra Club’s claims that EPA must regulate CO2.  Sierra Club based its argument on the Massachusetts decision and the Part 75 CO2 monitoring requirements, which Sierra Club concluded confirm that CO2 is a “pollutant subject to regulation under [the Act].”  Id. at 25.  Sierra Club noted that the “plain and unambiguous meaning” of the word “regulation” includes both emissions control standards and monitoring requirements.  Id. at 25-28.  Sierra Club further pointed to the D.C. Circuit’s Alabama Power decision, in which the court rejected industry’s efforts to restrict that language to only sulfur dioxides and particulates.  Id. at 30 (citing Alabama Power Co. v. Costle, 636 F.2d 323 (D.C. Cir. 1979)).  The Board, however, found that Sierra Club’s reliance on Alabama Power was inapposite, because the additional pollutants at issue in that case were already clearly subject to regulation under other provisions of the Act.  Deseret Power at 30.   

Sierra Club further argued that Congress removed all doubt that CO2 is a “pollutant subject to regulation” when it imposed CO2 monitoring requirements in Section 821.  Id. at 26, 31.  Sierra Club pointed out that the language of Section 821 is very similar to that of Sections 165 and 169, and therefore compels EPA to construe what pollutants are “regulated” consistently.  Id. at 31.  The Board, however, insisted that the statutory language must be read in context – a context that included a 13-year period between adoption of the various provisions, different terminology in different sections, and the lack of any express relationship between Section 821 and the PSD provisions.  Thus, in the absence of clear Congressional intent to the contrary, the Board concluded that Section 821 did not compel EPA to alter its approach to BACT determinations.  Id. at 34. 

Overall, the Board held that the phrase “‘subject to regulation under this Act’ is not so clear and unequivocal as [to] foreclose the narrower meaning suggested by the Region,” and therefore did not compel the Region to impose CO2 BACT limits in a permit.  Id. at 33, 63. 

            3.        The EAB’s Holding

Because the EAB found that Region 8’s justification for rejecting CO2 controls – i.e., its alleged inability to regulate in light of EPA’s historical interpretation – was invalid, the EAB had no choice but to remand the permit.  However, because the Board also found that EPA was not necessarily required to regulate CO2, it refused to mandate that the Region include a BACT determination for CO2.  Rather, the Board simply ordered the Region to evaluate whether it should require BACT for CO2.  Id. at 63.  Because the Board also recognized that its decision could have national implications, it further suggested that the Region may wish to seek a national determination from EPA Headquarters.  Id. at 4-5, 9-10, 63-64.

C.        Implications of the Decision

The Deseret Power decision is likely to engender significant controversy and result in additional delays in the PSD permitting process.  By requiring EPA to consider BACT for CO2, the EAB has opened the door to similar challenges by Sierra Club and others in a multitude of pending and future PSD permits.  Yet by not compelling BACT for CO2, the EAB has left open the door for industry to argue that CO2 limits are not warranted.  Thus, as a practical matter, this decision may effectively trump the Massachusetts v. EPA decision, by allowing direct regulation of CO2 emissions through permitting – even before EPA decides whether or not such regulation is warranted.

D.        EPA Guidance Interpreting PSD Regulations

Following the Board’s decision, EPA Administrator Stephen L. Johnson recently issued a national interpretation of the phrases “subject to regulation under the Act” and “regulated NSR pollutant,” regarding which pollutants are subject to PSD requirements and addressing the “confusion as to which sources must apply for PSD permits,” in the wake of the Board’s decision.  Memo. from S. Johnson, Administrator, EPA, to Regional Administrators (Dec. 18, 2008), available at http://www.epa.gov/oar/nsr/guidance.html at 2, 5.  EPA’s memorandum interprets the phrase “‘regulated NSR pollutant’ to exclude pollutants for which EPA regulations only require monitoring or reporting but to include each pollutant subject to either a provision in the Clean Air Act or regulation adopted by EPA under the Clean Air Act that requires actual control of emissions of that pollutant.”  Id. at 6.  Administrator Johnson stated that this guidance is consistent with the language and structure of the Act and its implementing regulations, “the historic practice of the Agency,” with prior statements from EPA officials, and with important policy considerations.  Id. at 2, 6, 9.  EPA also issued the decision “to provide the analysis and statement of intent that were lacking in the record of the Deseret permit.”  Id. at 8.  Therefore, CO2 is not a “regulated NSR pollutant,” because CO2 is subject to monitoring and reporting requirements only.  Id. at 1, 15.   

For a copy of the EAB decision, click here.  For more information, please contact Laura McAfee (lmcafee@bdlaw.com, 410-230-1330) or Holli Feichko (hfeichko@bdlaw.com, 202-789-6077).


[1] Because the facility is located on an Indian reservation, the EPA regional office (not the state) must review and issue the permit.  Id. at 5, n.1.

[2] Sierra Club also argued that Region 8 violated Section 165(a)(2), because it failed to consider alternatives to the new unit, such as the alternatives that Region 9 considered for the White Pine Energy Station Project in Nevada.  Id. at 1, 12, 21 (citing 42 U.S.C. § 7475(a)(2)).  The Board found that Section 165(a)(2) did not require Region 8 to analyze alternatives to a new plant, unless those alternatives were raised during the public comment period.  Id. at 2, 6, 22.  Here, because neither Sierra Club nor any other party raised possible alternatives to the power plant during the comment period, no such review was required.  Id. at 6, 22.   

[3] The relevant provision, Section 821 of the 1990 Amendments, requires monitoring of CO2 emissions contributing to climate change; it appears as a note to 42 U.S.C. § 7651k.  Id. at 32, n.29. 
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