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EPA Explains Implementation of Greenhouse Gas Regulation With Issuance of Final “Tailoring Rule”

Beveridge & Diamond, P.C., May 17, 2010

The Environmental Protection Agency (“EPA”) has finalized its plan to regulate greenhouse gasses (“GHGs”) under the existing Clean Air Act (“CAA”).  While the debate in Congress continues over climate change legislation, on May 13, 2010, EPA released what is being called the final piece of the three-part puzzle for regulating GHGs beginning in early 2011.  See Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule (the “Tailoring Rule”).  The Tailoring Rule follows closely on the heels of two other GHG-related final rules issued by EPA within the last two months: the Johnson Memorandum and the Light Duty Vehicle Rule.  While the previous two rules confirm that GHG emissions from stationary sources will be subject to regulation under the Clean Air Act beginning January 2, 2011, the Tailoring Rule establishes a phased implementation plan “tailoring” the stationary source permitting programs of the CAA to GHG emissions and limiting the number of sources affected by new GHG permitting requirements.

Background

EPA’s Final Reconsideration of the “Johnson Memorandum”

The permitting requirements of the CAA’s Prevention of Significant Deterioration (“PSD”) program only apply to newly constructed or modified major sources that emit one or more pollutants “subject to regulation.”  See 40 C.F.R. 52.21(b)(50).  Obtaining a PSD permit requires a source to install the best available control technology (“BACT”) for those regulated pollutants that the source emits in quantities meeting or exceeding a threshold expressed in tons per year (“tpy”).  EPA issued the Johnson Memorandum in 2008 in response to a decision by the EPA Environmental Appeals Board, which remanded a PSD permit to EPA for a determination of whether GHG emissions were “subject to regulation,” thereby requiring application of BACT for GHG pollutants.  See In re Deseret Power Electric Cooperative, PSD Appeal No. 07-03 (EAB 2008).  In the Johnson Memorandum, EPA concluded that the PSD regulations apply only to those pollutants for which EPA had established actual emissions controls, which, at the time, did not include GHGs. 

On March 29, 2010, EPA issued a final rule affirming the Johnson Memorandum’s interpretation that PSD permitting requirements are not triggered for a pollutant such as a GHG until a final nationwide rule requires actual control of emissions of the pollutant.  See Reconsideration of Interpretation of Regulations That Determine Pollutants Covered by the Clean Air Act Permitting Programs; Final Rule, 75 Fed. Reg. 17,004 (April 2, 2010).  In the final rule, EPA further refined its interpretation to establish that the triggering date is when the emissions control “takes effect,” not when the final rule is signed or published in the Federal Register.  Finally, EPA expanded the Johnson Memorandum’s “subject to regulation” trigger to the Title V permitting program which requires major sources of air pollutants to obtain a permit incorporating in one document the myriad of requirements applicable to the individual facility.  Thus, the final rule affirming the Johnson Memorandum established that PSD and Title V permitting requirements will apply to a newly regulated pollutant such as a GHG when and only when a regulatory control on emissions of that pollutant “takes effect.”    

The Light Duty Vehicle Rule

Released on April 1, 2010, just three days after the rule affirming the Johnson Memorandum, the Light Duty Vehicle Rule (“LDVR”) is EPA’s first national emissions standard to control GHG emissions from passenger cars and light duty trucks.  See Light-Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel Economy Standards; Final Rule, 75 Fed. Reg. 25324 (May 7, 2010).  The first GHG standards under the LDVR take effect when the 2012 model year begins, which is no earlier than January 2, 2011.  On that day, the LDVR will make GHGs “regulated pollutants” under EPA’s interpretation, which, according to the Johnson Memorandum, will trigger PSD and Title V permitting requirements for all GHG-emitting stationary sources. 

The PSD and Title V Greenhouse Gas Tailoring Rule

According to EPA, the final tailoring rule is intended to reduce what is expected to be a massive permitting burden on previously unregulated sources when the LDVR takes effect and GHGs become a regulated pollutant under EPA’s interpretation of the Clean Air Act.  To reduce the burden, the Tailoring Rule increases the threshold level of GHG emissions that will trigger the permitting requirements.  Under the CAA, new or modified major sources must obtain PSD permits and implement BACT if the source emits at least 100 or 250 tpy (depending on the type of source) of a regulated pollutant.  Likewise, Title V permitting requirements apply to sources that emit at least 100 tpy of a regulated pollutant.  According to EPA, while the statutory thresholds are appropriate for criteria pollutants, such as lead and sulfur dioxide, they are not feasible for GHGs, which are emitted in much higher volumes.  Applying the statutory thresholds to GHG emissions would sweep thousands of new or modified sources into the PSD program, and subject millions of sources to the requirements of Title V.

The Tailoring Rule seeks to reduce the permitting burden by “tailoring” the requirements of the PSD and Title V permitting programs to cover only the largest GHG-emitting sources.  The rule establishes a schedule to phase in the permitting requirements for GHGs in two initial steps:

Step 1: (January 2, 2011 – June 30, 2011)

  • During the first six-months, no sources would be subject to permitting requirements due solely to GHG emissions.
  • Only sources that would be otherwise subject to PSD requirements (i.e., sources that are newly constructed or modified in a way that significantly increases emissions of a pollutant other than GHGs) may be subject to permitting requirements for their GHG emissions.  Further, these sources would only need to go through a GHG BACT analysis if their GHG emissions increase by 75,000 tpy or more. 
  • Similarly, only sources currently subject to Title V (i.e., major sources for a pollutant other than GHGs) will be subject to Title V requirements for GHGs.

Step 2:  (July 1, 2011 – June 30, 2013)

  • PSD requirements will apply to modifications at existing facilities if the modification increases GHG emissions by at least 75,000 tpy, even if the modification does not exceed the significance threshold of any other pollutant.  New construction projects will trigger permitting requirements if the facility will emit at least 100,000 tpy of GHGs, even if the project does not exceed the permitting threshold for any other pollutant. 
  • Title V operating permits will apply to facilities that emit at least 100,000 tpy of GHGs, even if the source does not exceed the significance threshold for any other pollutant. 

Outline of the Future

The final Tailoring Rule also outlines a third step for implementing requirements between June 30, 2013 and April 30, 2016.  The third step will be preceded by an additional rulemaking action set to begin in 2011 and conclude no later than July 1, 2012.  According to EPA, the Step 3 rulemaking will consider reducing the GHG emission threshold to a level not lower than 50,000 tpy, and will consider the possibility of permanently exempting smaller sources from permitting requirements and other “streamlining options” designed to reduce regulatory burdens.  EPA will not require permits for smaller sources in step three until at least April 30, 2016.

Other Noteworthy Points

  • According to EPA, the new GHG emissions thresholds will also take effect in state, local, and tribal programs that administer their own CAA permitting requirements under EPA approval (i.e., state implementation plans or “SIPs”).  The final rule asks states to inform EPA whether they must make rule changes to implement the new GHG emissions thresholds, and if so, when such changes will be adopted.  If a state is unable to implement the new thresholds, EPA will “take appropriate action to ensure that the existing CAA permitting rules do not apply to sources excluded” by the Tailoring Rule.   
  • The final rule applies to six GHGs:  Carbon dioxide (CO2), Methane (CH4), Nitrous oxide (N2O), Hydrofluorocarbons (HFCs), Perfluorocarbons (PFCs), and Sulfur hexafluoride (SF6).  Because some GHGs have greater potential to effect climate than others, the GHG thresholds express GHG emissions in “carbon dioxide equivalents” (CO2e).  The CO2e metric translates emissions of gases other than CO2 into CO2e by using the gases’ climate change potential.  Total GHG emissions will be calculated by summing the CO2e emissions of all six regulated GHGs. 
  • EPA plans to develop supporting guidance to assist permitting authorities, including guidance on identifying BACT for GHGs.

Conclusion

Issuance of the final Tailoring Rule is the most significant step to date toward regulation of GHG emissions.  The rule eases the implementation of CAA permitting requirements that would otherwise apply to a multitude of GHG-emitting sources beginning January 2, 2011, when the LDVR takes effect and, according to EPA, makes GHGs “subject to regulation” under the PSD and Title V permitting programs.  Nevertheless, stakeholders can continue to expect new developments on all fronts of the GHG issue, including proposed legislation and additional regulatory developments and guidance.  There is a high likelihood the Tailoring Rule will be challenged in court given the arguably questionable bases EPA has to alter by rule the emissions thresholds set forth in the CAA, delay implementation of GHG permitting requirements, and order the Tailoring Rule to take effect even in SIP-approved state permitting programs.  If the Tailoring Rule is rejected by a federal court, it could impose burdensome permitting requirements on a massive amount of small GHG sources and create a regulatory clog difficult to address without Congressional intervention.  For now, large emitters of GHGs should watch the issue closely and be sure to understand the permitting obligations scheduled to take effect in 2011. 

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For additional information or questions regarding this final rule and its relation to other EPA rules regarding GHGs, please contact David Friedland at dfriedland@bdlaw.com, (202) 789-6047, Amy Lincoln at alincoln@bdlaw.com, (415) 262-4029, Laura LaValle at llavalle@bdlaw.com, (512) 391-8020, or Graham St. Michel at gstmichel@bdlaw.com, (202) 789-6039.