EPA Moves Forward With Greenhouse Gas Regulation

By Caleb Holmes on December 26, 2010

From Stephen C. Jones of GT Philadelphia:

The Environmental Protection Agency (EPA) took another dramatic step toward comprehensive regulation of greenhouse gases (GHGs) last week when it committed to issue sector-wide New Source Performance Standards (NSPS) to control GHG emissions from fossil-fuel based power plants and petroleum refineries. Responsible for almost 40% of GHGs emitted in the United States, application of the new NSPS to these two industries is expected to have a significant impact on GHG emissions in this country. While Congressional efforts over the past few years to control GHGs through comprehensive cap and trade programs generated much public discourse and awareness, federal, state, regional, and local governments and regulatory agencies have been working behind the scenes to limit GHG emissions, largely through regulation. To the surprise of many, because of these regulatory efforts, the death of federal cap and trade in Congress has not meant the end of GHG regulation in the United States. Instead, it is the beginning of what promises to become a comprehensive, mandatory regulatory scheme, involving all levels of government, that within the next three to five years will control GHGs in all sectors of the economy. Instead of the flexible, market-based controls contemplated by federal cap and trade, however, businesses will face more stringent, and likely more costly, compulsory mandates requiring reductions in GHG emissions.

EPA agreed to promulgate the NSPS as part of a pair of settlements of lawsuits filed by states and environmental groups in the DC Circuit. Standards will be issued in draft for the power plants by July 2011 and for refineries by December 2011, with final regulations promulgated by July 2012 and December 2102, respectively. NSPS standards, issued under Section 111 of the Clean Air Act, apply to new or modified facilities in specific industrial sectors. The new NSPS are different than, and will not affect, EPA’s January 2, 2011, implementation of regulations requiring permits for facilities that emit 75,000 tons or more of GHGs per year. The permitting requirements are being implemented under the Clean Air Act’s Prevention of Significant Deterioration (PSD) and Title V permitting programs. While NSPS establish federal emission limits across an industry or business sector, the PSD and Title V programs are administered by the states through permits issued on a case-by-case basis to individual facilities. Those facilities are required to implement Best Available Control Technology (BACT), which EPA has suggested will consist primarily of energy efficiency measures, use of renewable energy, and switching fuel sources. This allows EPA to impose additional emission controls beyond those required by NSPS.

Congress entertained, and rejected, a number of federal cap and trade programs over the past few years. These programs were intended to establish a single, comprehensive nationwide program to control GHG emissions by, among other things, preempting most other federal, state, regional, and local efforts to regulate GHGs. While Congress and the public were focused on those efforts, however, state and local governments and regulatory agencies at all levels have been answering the call to reduce GHG emissions by adopting, relatively quickly and methodically, a broad array of laws and regulations on their own. Beginning with the Supreme Court’s 2007 decision in Massachusetts v. EPA , followed by EPA’s 2009 Endangerment Determination in response thereto, EPA’s regulation of the mobile GHG emissions as required by the Supreme Court automatically triggered regulation of stationary sources. This led quickly to EPA’s promulgation of the PSD and Title V controls, and development of the Tailoring Rule to try to rationalize the large quantities of GHG emissions emitted by facilities with the Clean Air Act’s plain language requiring regulation of small quantities of emissions. Numerous cases filed by states and business groups challenging EPA’s regulatory efforts, and numerous cases filed by states and environmental groups to compel further or expedited GHG regulation by EPA, simultaneously are working their way through the courts. Although no challenges have been successful to date, the litigation is creating significant legal and regulatory uncertainty as EPA and the others move to implement their programs. State, regional, and local efforts to force GHG reductions include mandatory GHG emission reductions affecting a broad, diverse range of business sectors, imposition of green building and land use requirements, promulgation of state, local, and international green building codes, required federal and state reporting of GHG emissions, expansion of SEC and voluntary GHG disclosure obligations, required federal and state NEPA evaluation of (and challenges to) GHG impacts of projects, development of federal, state, and local adaptation studies and programs, the Supreme Court’s willingness to entertain GHG nuisance suits (opening up the possibility that GHG emission limits may one day be established by courts), and carbon trading, whether in international, state, or regional cap and trade programs or the voluntary carbon credit markets.

Although members of Congress, supported by many business groups, have tried to halt or delay EPA’s regulatory efforts, all such efforts to date have failed. Last month, EPA Administrator Lisa Jackson laid down the gauntlet, declaring that EPA would continue to expand its regulation of GHG emissions unless stopped by Congress. Many are threatening to continue efforts in the new Congress to stop EPA. It is difficult to predict whether these renewed efforts will be successful, but with public support of GHG reduction efforts still strong, and the growing involvement of the courts, whether through court decisions or settlements such as those which triggered EPA’s commitment to promulgate the NSPS, it seems that it will become increasingly difficult for Congress to act. Further, unless the stop-EPA proponents are successful in attaching the legislation to a bill that President Obama cannot veto, the President has made it clear that he has no intention of supporting any legislation that would stop or slow down EPA’s efforts short of establishing a comprehensive federal cap and trade program. Given the foregoing, the first part of 2011 promises to be an exciting time for GHG regulation in the United States.

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EPA Moves Forward With Greenhouse Gas Regulation