US Supreme Court rules on EPA GHG permitting requirements:

Provides partial reprieve

June 2014 Authors: Edward Clark Lewis, Bob Greenslade

Contacts

Key industry sectors

On June 23, 2014, the United States Supreme Court issued its opinion in Utility Air Regulatory Group v. EPA,1 holding that the federal Clean Air Act (CAA) does not allow the US Environmental Protection Agency (EPA)  to regulate emissions sources under the Prevention of Significant Deterioration (PSD) and Title V permitting programs based solely on greenhouse gas (GHG) emissions. 

Specifically, the Court held that the EPA's interpretation that GHGs are "regulated pollutants" that can, on their own, trigger PSD and Title V permitting requirements was impermissible because it would cover small sources that Congress did not expect would need to undergo permitting.  In addition, the EPA cannot deviate from the explicit 100 and 250 tons per year (tpy) applicability thresholds established under the CAA for the PSD and Title V programs.

However, the Supreme Court also held that the EPA did have discretion to require Best Available Control Technology (BACT) for "anyway" sources, meaning sources which are otherwise subject to PSD permitting requirements based on emissions of conventional, non-GHG pollutants.  For these sources, the Court determined that the EPA may establish de minimis thresholds, above which BACT would be required if PSD review was already triggered for other pollutants. 

Because the EPA will almost certainly establish such de minimis thresholds, the Court's opinion could be viewed as a pyrrhic victory that provides only temporary relief for many large industrial facilities.  In fact, the opinion creates the potential for the EPA to establish lower thresholds than those provided by the Tailoring Rule, meaning it may become more difficult for some sources to escape BACT review for GHGs. 

Of note, there is language in the opinion acknowledging assertions that BACT should be restricted to add-on controls and should not encompass measures such as energy efficiency.  The Court somewhat sidestepped this issue, by assuming (but not deciding) that BACT may be used to force "some" improvements in energy efficiency.  Nevertheless, this section of the opinion may have implications for future BACT reviews.

It is also unclear how the Supreme Court's opinion will impact future challenges to the EPA's pending proposed New Source Performance Standards (NSPS) for new and modified electricity generating units (EGUs) and the separate proposed NSPS for existing EGUs.  On the one hand, the opinion delivers a stern warning that the EPA cannot by interpretation "bring about an enormous and transformative expansion in the EPA's regulatory authority without clear congressional authorization."  On the other hand, the Supreme Court has, for the third time, held that the EPA has authority to regulate GHG emissions under the CAA.  Although there are now limits on that authority in the context of PSD and Title V, NSPS is a wholly separate program with different, though similar, definitions.  In particular, there are no statutory tpy thresholds under the NSPS.  Further, the NSPS provisions use the term "best system of emission reduction" (BSER) instead of the term BACT, which may have implications on the manner of permissible control methods.

Background:  the Timing and Tailoring Rules

The Supreme Court's opinion concerns two EPA rulemakings, the "Timing Rule," issued in April 2010, and the "Tailoring Rule," issued in May 2010.  In the Timing Rule, the EPA formalized a December 2008 interpretation that air pollutants become "subject to regulation" if a provision adopted under the CAA requires actual control of emissions of that pollutant.  Based on this interpretation, the EPA explained that permitting requirements under Title I (PSD) and Title V of the CAA would automatically trigger for GHGs, not when the agency's GHG standards for light-duty vehicles were finalized, but when the emissions limits took effect on January 2, 2011.  The Timing Rule established, at a general programmatic level, when PSD and Title V permitting requirements would become applicable. 

In contrast, the Tailoring Rule concerned the emissions levels at which permitting would be triggered for individual stationary sources.  Despite statutory language defining these "major source" thresholds as either 100 tpy or 250 tpy, the Tailoring Rule established thresholds of 100,000 tpy and 75,000 tpy of CO2 equivalents (CO2e).  Countless comparatively small combustion sources emit 100 tpy or 250 tpy of CO2e, so the EPA justified its departure from the statute based on an administrative need to phase in the permitting requirements to avoid the "absurd results" associated with the flood of applications that would result from immediately applying the statutory limits.

Of note, the first phase of the Tailoring Rule provided that, between January 2, 1011, and June 30, 2011, GHG increases of 75,000 tpy of CO2e triggered PSD permitting only for "anyway" sources, meaning sources already subject to PSD review based on new or increased emissions of non-GHG pollutants.  In other words, during this very first phase-in period, sources could not trigger PSD review based on GHGs alone, but were nevertheless subject to BACT for GHGs if they had to undergo PSD permitting "anyway."

The DC Circuit's opinion

The case below, Coalition for Responsible Regulation v. EPA,2 involved consolidated challenges in the DC Circuit to four EPA rulemakings regarding GHG emissions:  (1) an endangerment finding; (2) emissions standards for light-duty vehicles; (3) the Timing Rule; and (4) the Tailoring Rule.  The court upheld all four rules.  The endangerment finding and light-duty vehicle rules were not under review by the Supreme Court, so we will dispense with a summary of their treatment by the DC Circuit.

The DC Circuit began its analysis by noting that the CAA requires PSD permits for stationary sources emitting major amounts of "any air pollutant."3  Citing Massachusetts v. EPA,4 the court concluded that "any air pollutant" includes all regulated air pollutants, including GHGs.5  Based on the "Declaration of Purpose" included by Congress in the CAA legislation, the court also found that the PSD program was meant, in part, to protect against adverse effects on weather and climate.6    

Next, the court expressly rejected, based on a textual analysis, the following three arguments:  (1) that the PSD program is focused exclusively on localized air pollution, (2) that stationary sources which are not major for a "criteria pollutant,"7 cannot be subjected to PSD requirements based on their GHG emissions; and (3) that, before adding GHGs to the PSD program, the EPA was required to go through an evaluation process associated with designating new criteria pollutants.8

Finally, the court turned to the Timing and Tailoring Rules.  The court dismissed the challenges to the two rules based on standing.  Specifically, the court held that the petitioners were subject to PSD and Title V permitting requirements "by automatic operation of the statute" and, because the Timing and Tailoring Rules actually mitigate those automatic permitting requirements, there was no injury in fact to be remedied by the requested vacatur of the rules.9  

The Supreme Court's opinion

The Supreme Court granted review of a single question:  "Whether EPA permissibly determined that its regulation of greenhouse gas emissions from new motor vehicles triggered permitting requirements under the Clean Air Act for stationary sources that emit greenhouse gases."  The opinion breaks this question into two elements:  (1) Whether the EPA can require PSD and Title V permitting can be triggered solely by GHG emissions; and (2) Whether the EPA can require BACT for sources otherwise subject to PSD permitting.

On the first issue, five justices10 rejected the EPA's contention that regulation of GHG emissions from mobile sources, pursuant to Title II of the CAA, triggered GHG permitting under PSD and Title V.  First, the Court noted that the EPA regularly construes and limits the general CAA term "air pollutant" based on the specific context of CAA programs.  According to the Court, Massachusetts v. EPA did not embrace the EPA's categorical position that GHGs "must be air pollutants for all purposes." 

Next, the Court addressed whether the EPA had discretion to impose GHG permitting for stationary sources.  Citing the EPA's own language, the Court noted that applying PSD and Title V permitting based on statutory thresholds of 100 tpy and 250 tpy of GHGs was inconsistent with the substance of Congress' regulatory scheme.  In this context, the Court noted the following:

  • "EPA's interpretation is also unreasonable because it would bring about an enormous and transformative expansion in EPA's regulatory authority without clear congressional authorization."
  • "When an agency claims to discover in a long-extant statute an unheralded power to regulate a significant portion of the American economy, we typically greet its announcement with a measure of skepticism."11
  • "An agency has no power to 'tailor' legislation to bureaucratic policy goals by rewriting unambiguous statutory terms."
  • "Were we to recognize the authority claimed by EPA in the Tailoring Rule, we would deal a severe blow to the Constitution's separation of powers."

Despite the language above, seven justices preserved the EPA's authority to impose BACT controls for GHG emissions for sources that must undergo PSD review "anyway."12  The Court noted that the text of the BACT provision in the CAA is far less open-ended than the text of the PSD and Title V permitting triggers.  Specifically, BACT is required "for each pollutant subject to regulation under this chapter," with the "chapter"13 meaning the entire CAA.14  

The Court determined that allowing the EPA to impose BACT for GHG emissions from "anyway" sources would not extend EPA's jurisdiction to millions of previously unregulated entities, but would only moderately increase the demands for sources already subject to regulation.  The Court also stated that such BACT controls would only be required for sources emitting more than a de minimis amount of GHGs, which is not necessarily the 75,000 tpy CO2e threshold established by the Tailoring Rule.

Telegraphing an important issue for future resolution, the Court did not endorse the EPA's BACT guidance for GHG emissions.  The Court acknowledged arguments asserting that BACT is about "end-of-stack" controls, and cannot be used to regulate energy use, but assumed without deciding that BACT can be used to force some improvements in energy efficiency.  The Court then cautioned the EPA that there is a potential for GHG BACT to lead to "an unreasonable and unanticipated degree of regulation," and that the Court's decision should not be taken as providing the EPA free rein for any future regulatory application of BACT.

Conclusion

This was the third GHG decision from the Supreme Court in seven years.  The first two, Massachusetts v. EPA and American Electric Power Co. v. Connecticut, endorsed the EPA's regulation of GHGs under the current provisions of the CAA.  While this new decision provides some restraints on the EPA's discretion, the fact remains that seven justices voted to uphold the EPA's general statutory authority to regulate emissions of GHGs.15

It appears clear that the Supreme Court's decision invalidates any PSD permits issued by the EPA and the states since July 1, 2011 to sources that are only major for GHGs.  Less clear is whether the opinion also invalidates BACT provisions in PSD permits for "anyway" sources or the fate of GHG permits issued by EPA when states have refused to issue GHG permits to anyway sources.  The Court endorsed the EPA's power to impose BACT on these sources, but only for those sources emitting more than a de minimis level of GHG emissions.  Among other things, it appears that the validity of prior BACT determinations for GHG emissions from these sources will depend on whether the EPA can successfully argue that the Tailoring Rule thresholds are at least de minimis.16 

The Court's opinion raises the prospect that more, and not fewer, industrial sources will eventually be subject to BACT limits for GHGs.  On the one hand, the Court's opinion restricts the subset of sources to those which must apply for a PSD permit.  On the other, it appears that the EPA may now be able to lower GHG thresholds and, no longer faced with the prospect of subjecting millions of sources to permitting requirements, the agency may be willing to do just that. 

The Court's opinion is very specific to the language in the CAA's PSD provisions and, therefore, may be of limited use in challenges to the EPA's proposed NSPS for new and modified EGUs and proposed NSPS for existing EGUs.  In particular, there are no statutory tpy applicability thresholds in the NSPS provisions.  Also, PSD proscribes Best Available Control Technology, but the NSPS requires the best system of emissions reduction—it remains to be seen whether, as the EPA contends, BSER allows the types of measures proposed by the EPA in the NSPS for existing EGUs.  Finally, it will remain to be seen how yesterday's decision impacts the United States' negotiating and bi-lateral deal making leverage in the forthcoming international climate negotiations in Lima, Peru in December, 2014, where a preliminary draft text of a global climate change deal is anticipated.  


 

2 684 F.3d 102 (D.C. Cir. 2012).

3 Id. at 134.

4 549 U.S. 497 (2007).

5 Coalition for Responsible Regulation, 684 F.3d at 134.

6 Id. at 135–36.

7 Meaning an air pollutant for which the EPA has established National Ambient Air Quality Standards.

8 Id. at 136–44.

9 Id. at 146–47.

10 Justice Scalia delivered the majority opinion, in which Justices Roberts and Kennedy concurred in all parts.  Justices Thomas and Alito concurred in the part discussing this first issue.  Justice Alito was joined by Thomas in a dissent arguing that Massachusetts v. EPA was wrongly decided.  

11 Citing FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 159 (2000) (internal quotations omitted).

12 Justices Scalia, Roberts, and Kennedy were joined by Justices Ginsburg, Breyer, Sotomayor, and Kagan.  Justice Breyer authored a dissent, joined by Justices Ginsburg, Sotomayor, and Kagan, that would have upheld the EPA's Timing and Tailoring rules.

13 Specifically, Chapter 85 of 42 U.S.C., titled "Air Pollution Prevention and Control."

14 42 U.S.C. § 7475(a)(4).

15 During oral arguments, Chief Justice Roberts noted that he was in the dissent in Massachusetts, but in the context of stating that he considers Massachusetts binding precedent on the Court.  Accordingly, it is not surprising that the Chief Justice did not join Justice Alito's dissent.

16 Specifically, the EPA might argue that it could not establish thresholds below de minimis, meaning the thresholds must be at least de minims.