EPA Issues Controversial Greenhouse Gas Interpretive Ruling

May 30, 2009 - Stoel Rives, LLP

On March 29th EPA signed a long-awaited interpretive ruling regarding when and how facilities that emit greenhouse gases will be subject to permitting under Title V and Major New Source Review . The federal rules state that a source must consider those pollutants that “are subject to regulation” under the Clean Air Act when determining whether the source is a major Prevention of Significant Deterioration (PSD) source. As the PSD major source threshold currently stands at either 100 or 250 tons per year (depending on your source type), almost any combustion source would trigger PSD. In addition, a source that triggers PSD must establish Best Available Control Technology (BACT) for any pollutant subject to regulation that it emits in significant amounts. Therefore, even if the source is presumed not to trigger PSD based on its greenhouse gas emissions, that source would potentially still need to establish BACT for greenhouse gases. In December 2008, EPA issued a memorandum stating that “subject to regulation” meant “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,” while excluding pollutants “for which EPA regulations only require monitoring or reporting.” Thus the fact that some power plants are required to monitor for CO2 did not make CO2 a pollutant “subject to regulation.” The Sierra Club requested that EPA reconsider this position, and EPA agreed to do so just over a year ago. The result was the document released March 29, 2010.

In its interpretive ruling, EPA concluded that it will continue to consider greenhouse gases as pollutants that are potentially subject to regulation. However, EPA will not consider greenhouse gases “subject to regulation” until the first substantive rule regulating greenhouse gases actually takes effect. With the promulgation of automobile greenhouse gas standards looming, but the actual implementation date of those standards a year off, this distinction is very important. EPA was clear that the adoption of automobile greenhouse gas standards will not cause greenhouse gases to become a regulated pollutant, but that once automobile manufacturers actually have to comply with the limits, greenhouse gases will become a regulated pollutant that can potentially trigger PSD and/or BACT. Automobile manufacturers do not need to comply with the standards prior to January 2, 2011. Therefore, prior to 2011 there is a strong argument that new major sources or major modifications at existing major sources need not determine BACT or otherwise address PSD for greenhouse gases. However, this is only a temporary reprieve, and EPA stated that on January 2, 2011 it will consider greenhouse gases to be subject to PSD (assuming the final automotive standards are issued in time to be applicable to model year 2012 vehicles). EPA is actively working on guidance for how to establish BACT for greenhouse gases. This ruling does not alter EPA’s plans to implement a separate rule (the “Tailoring Rule”) that will increase the applicability threshold for Title V and PSD sources to a number significantly greater than 250 tons per year of greenhouse gas emissions.

A key question that sources in the midst of permitting are asking is what happens if their permit is issued on or after January 2, 2011. EPA refused in this document to grandfather in applications deemed complete prior to that date. Instead, EPA stated that “each PSD permit issued on or after January 2, 2011 would need to contain provisions that satisfy the PSD requirements that will apply to GHGs as of that date.” A facility that triggered PSD for greenhouse gases alone will presumably be impacted by the Tailoring Rule. However, any source that triggers PSD for another pollutant will need to consider whether it needs to address BACT for greenhouse gases. Whether a facility needs to address PSD or BACT could vary from state to state depending on the how PSD is implemented in that state. EPA expressly threatens those states, such as Oregon, that enumerate their PSD pollutants (rather than including all pollutants “subject to regulation) with a State Implementation Plan (SIP) call if they do not apply PSD to greenhouse gases starting on January 2, 2011. However, whether the state has the authority to do so will depend on the rules in place.

EPA further stated that Title V applicability will be interpreted consistent with PSD applicability. Those sources with greater than 100 tpy of greenhouse gases emissions would become subject to Title V permitting (assuming they are not already subject to Title V permitting) on January 2, 2011, unless the Tailoring Rule establishes alternate applicability thresholds before that time. Look for the Tailoring Rule to bring some order to this process, but in the meantime a number of sources will still need to consider Title V for the first time in 2011 as a result of their greenhouse gas emissions.

This interpretive ruling is a final agency action open for challenge in the D.C. Circuit. The interpretive ruling takes effect immediately upon publication. If you have any questions or would like to discuss this ruling, please contact:

Marty Banks at (801) 578-6975 or mkbanks@stoel.com
Matt Cohen at (206) 386-7569 or mcohen@stoel.com
Krista McIntyre at (208) 387-4239 or kkmcintyre@stoel.com
John McKinsey at (916) 319-4746 or jamckinsey@stoel.com
Lee Smith at (916)  319-4651 or lnsmith@stoel.com
Tom Wood at (503) 294-9396 or trwood@stoel.com