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May 13, 2010

EPA Issues Final “Tailoring” GHG Permitting Rule

The ACTA Group

Today the U.S. Environmental Protection Agency (EPA) issued what it describes as a “common sense” approach to addressing greenhouse gas (GHG) emissions from stationary sources under the Clean Air Act (CAA) by phasing-in the deadlines by which facilities must obtain permits for GHG emissions. Specifically, this controversial final rule sets thresholds for GHG emissions that define when permits under the New Source Review (NSR) Prevention of Significant Deterioration (PSD) and Title V Operating Permit programs are required for new and existing industrial facilities. The rule has not yet been published in the Federal Register. The final rule and related materials can be accessed via EPA’s website online; the rule will be effective 60 days after it appears in the Federal Register.

The scope of the rule is broad, both with respect to GHGs covered and the industry sectors impacted. For purposes of this rule, GHGs are defined to include carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6). Major sectors of the economy are likely to be impacted by this final rule, including agriculture, mining, utilities, natural gas, manufacturing, paper manufacturing, petroleum and coal products, chemical manufacturing, and the metals industry. The largest emitters of GHG within these sectors will be required to obtain or modify their permits to address emissions of GHG during the first phase of the rule’s implementation. Permitting for smaller sources of GHG emissions will be deferred for the second phase.

The so-called “tailoring” rule limits which facilities will be required to obtain PSD and Title V permits. It does so by establishing a schedule that will initially focus CAA permitting programs on the largest sources of GHG emissions. During this initial phase, only stationary sources already regulated by the PSD or Title V programs will be regulated, and then only if they emit large quantities of GHGs. The rule then expands to cover the largest sources of GHG that may not have been previously covered by the CAA for other pollutants. EPA believes this tailored approach is necessary because, the Agency argues, without it tens of thousands of facilities would be subject to permitting requirements for GHG emissions.

There is logic in the overall approach. The CAA permitting program emissions thresholds for criteria pollutants such as lead, sulfur dioxide, and nitrogen dioxide are 100 and 250 tons per year (tpy). While these thresholds are appropriate for criteria pollutants such as lead, they are not feasible for GHGs because they are emitted in much higher volumes. Without this tailoring rule, the lower emissions thresholds of 100 and 250 tpy would take effect automatically for GHGs on January 2, 2011. According to EPA, PSD and Title V requirements at these thresholds would lead to dramatic increases in the number of required permits — tens of thousands of PSD permits and millions of Title V permits.

The immediate origin of this rule is an April 2007 Supreme Court decision. The Court found that GHGs, including carbon dioxide, are air pollutants covered by the CAA. Massachusetts v. EPA, 549 U.S. 497 (2007). The Court also found that EPA was required to determine whether or not emissions of GHGs from new motor vehicles cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare, or whether the science is too uncertain to make a reasoned decision. In April 2009, EPA responded to the Court by proposing a finding that GHGs contribute to air pollution that may endanger public health or welfare.

The next steps in this somewhat convoluted regulatory history were two findings that EPA Administrator Lisa P. Jackson issued in December 2009. First, Administrator Jackson issued an “endangerment finding” that the current and projected atmospheric concentrations of six GHG pollutants threaten the public health and welfare of current and future generations. Next, Administrator Jackson found that the combined emissions of these GHGs from new motor vehicles and new motor vehicle engines contribute to the GHG pollution which threatens public health and welfare. While these findings do not impose any requirements, they were a prerequisite to finalizing the GHG standards for light-duty vehicles.

Another piece of this regulatory program is a memorandum issued by EPA entitled “EPA’s Interpretation of Regulations that Determine Pollutants Covered by Federal Prevention of Significant Deterioration (PSD) Permit Program” (PSD Interpretive Memo). Whether a pollutant is “subject to regulation” is important for the purposes of determining whether it is covered under the CAA permitting programs. The PSD Interpretive Memo established that a pollutant is “subject to regulation” only if it is subject to either a provision in the CAA or regulation adopted by EPA under the CAA that requires actual control of emissions of that pollutant.

On February 17, 2009, however, EPA granted a petition for reconsideration of this memorandum. Subsequently, on March 29, 2010, Administrator Jackson signed a notice conveying the Agency’s decision to continue applying the PSD Interpretive Memo’s interpretation of “subject to regulation.” As a consequence, EPA established that CAA permitting requirements apply to a newly regulated pollutant at the time a regulatory requirement to control emissions of that pollutant “takes effect” (rather than upon promulgation or the legal effective date of the regulation containing such a requirement). Based on the anticipated promulgation of the light-duty vehicle rule, the notice stated that the GHG requirements of the vehicle rule would trigger CAA permitting requirements for stationary sources on January 2, 2011.

The confluence of these events — existing requirements under the PSD and Title V permitting programs, the Supreme Court decision, EPA’s endangerment finding and PSD Interpretive Memo, and the effective date of the GHG rule for mobile sources — has forced EPA to regulate GHG emissions under the PSD and Title V programs. Because of the potential impact of such a rulemaking, EPA found it necessary to consider an approach to regulating sources of GHGs in a manner that attempts to impose a reasonable deadline for permitting. EPA thus is implementing the rule in two phases.

During the first phase — from January 2, 2011, to June 30, 2011 — only sources currently subject to the PSD permitting program would be subject to permitting requirements for their GHG emissions under PSD. For these projects, only GHG increases of 75,000 tpy or more of total GHG would need to determine the Best Available Control Technology (BACT) for their GHG emissions. Similarly for the Title V permit program, only sources currently subject to the program would be subject to Title V requirements for GHG. During this first phase, no sources would be subject to permitting requirements due solely to GHG emissions.

In the second phase — July 1, 2011, to June 30, 2013 — PSD permitting requirements will for the first time apply to new construction projects that emit GHG emissions of at least 100,000 tpy even if they do not exceed the permitting thresholds for any other pollutant. Modifications at existing facilities that increase GHG emissions by at least 75,000 tpy will be subject to permitting requirements, even if they do not significantly increase emissions of any other pollutant. During this phase, operating permit requirements will, again for the first time, apply to sources based on their GHG emissions even if they would not apply based on emissions of any other pollutant. Facilities that emit at least 100,000 tpy carbon dioxide equivalents will be subject to Title V permitting requirements.