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U.S. Supreme Court Issues Long-Awaited Decision on EPA GHG Permitting Authority

V&E Environmental Law Update E-communication, June 26, 2014

Since 2010, EPA rules have applied the Clean Air Act's pre-construction and operating permit programs to emissions of greenhouse gases (GHG). On June 23, a splintered U.S. Supreme Court invalidated those rules to the extent that they trigger permitting obligations based on GHG emissions ( Utility Air Regulatory Group (UARG) v. EPA ). The opinion left intact EPA's ability to apply the pre-construction permit program's control technology reviews to GHG to the extent that emissions of other pollutants trigger the need for a permit. In the course of its opinion, the Court also scattered tea leaves that will be read intently to foretell what the Court will accept as EPA's scope of authority to integrate GHG into other Clean Air Act (CAA) programs. 

The Road to the Supreme Court
In 2007, the Supreme Court held in Massachusetts v. EPA that GHG could be an "air pollutant" for the purposes of the CAA's Title II mobile source control program. Consequently, EPA could not decline to regulate GHG emissions from mobile sources if the Agency determined that GHG emissions endanger public health or welfare. This holding gave way to EPA's " endangerment finding " in 2009 (that GHG emissions endanger public health and welfare), and then to the " Tailpipe Rule " in 2010 (setting GHG emissions standards for new mobile sources). EPA then asserted in the " Triggering Rule " that once GHG emissions from mobile sources became regulated under Title II, GHG also became "subject to regulation" under Titles I (the "prevention of significant deterioration" pre-construction permit program) and V (the operating permit program). According to this rule, emissions of GHG could trigger the obligation to obtain pre-construction and operating permits just like any other conventional pollutant. Because this would subject far too many sources to permitting obligations, EPA announced that it would "tailor" the programs by increasing the applicability threshold for GHG by several orders of magnitude above those set forth in the CAA itself (from 100 and 250 tons per year (tpy) to 75,000 and 100,000 tpy).

In 2012, the D.C. Circuit rejected challenges to these rulemakings in Coalition for Responsible Regulation, Inc. v. EPA .* Nine petitions for certiorari followed, of which the Supreme Court granted six.

The UARG Opinion 
The Supreme Court's review was limited to one 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." Within this question, the Court opined on two challenges to EPA's GHG permitting authority. First, the Court analyzed "whether EPA permissibly determined that a source may be subject to the PSD and Title V permitting requirements on the sole basis of the source's potential to emit greenhouse gases." Second, whether it was valid for EPA to require sources "that would need permits based on their emission of conventional pollutants to comply with BACT for greenhouse gases."

Part I: The Act neither compels nor allows EPA to adopt an interpretation of the Act requiring a source to obtain a PSD or Title V permit on the sole basis of its potential GHG emissions. 
The Court's opinion hinged on its willingness to accept that the CAA's various programs allowed for substances to be a "pollutant" in one statutory context, but not others. The Court cited to several other operative provisions of the Act for which the Agency had given "air pollutant" a narrower, context-appropriate meaning and "in each instance EPA has concluded - as it has in the PSD and Title V context - that the statute is not using 'air pollutant' in Massachusetts ' broad sense to mean any airborne substance whatsoever."

While finding that the Act does not compel EPA to regulate GHGs under the PSD and Title V permitting programs, the Court also concluded the Act does not allow the Agency's interpretation as a justified exercise of "its 'discretion' to adopt 'a reasonable construction of the statute.'" Including GHG under these programs would cause annual permit applications to skyrocket - from a few thousand to a few million - and annual administrative costs would increase from roughly $75 million to $23 billion. Even EPA acknowledged on several occasions that applying the CAA's permitting requirements to GHG would be inconsistent with the Act's structure and design, and the results would be "so 'contrary to congressional intent'" that they "necessitated as much as a 1,000-fold increase in the permitting thresholds set forth in the statute." The majority found that result unreasonable and so declared the Tailoring Rule unlawful because "it would bring about an enormous and transformative expansion in EPA's regulatory authority without clear congressional authorization."

Part II: EPA reasonably interpreted the Act to require "anyway" sources to comply with best available control technology (BACT) emission standards for GHGs. 
The Court was deferential here, holding that although EPA's rules could not trigger permitting requirements based on GHG emissions, EPA could subject GHG to permitting requirements if other pollutants triggered the need for a permit (so-called "anyway" sources). EPA did so even though the Court acknowledged that many of the PSD requirements made no sense as applied to GHG and even the control technology review requirement could "lead to an unreasonable and unanticipated degree of regulation." Accordingly, the majority directed that its decision "should not be taken as an endorsement of all aspects of EPA's current approach, nor as a free rein for any future regulatory application of BACT in this distinct context." It also clarified that EPA may only require an "anyway" source to comply with GHG BACT if the source emits more than a de minimis amount of GHGs. The ruling does not identify what the de minimis threshold should be, leaving it up to EPA to establish this limit through a later rulemaking.

Open Issues
The majority's opinion does not immediately resolve all issues concerning CAA permitting of GHG emissions. First, for "anyway" sources, what is a de minimis level of GHG emissions such that a permitting authority's GHG BACT review can be avoided? Answering this question will require EPA rulemaking, and then conforming state law changes.

Second, existing state permit programs may need to be amended before permitting decisions can be made based on the UARG opinion. Although the Court has made it clear that EPA was never allowed to compel state programs to have GHG-triggered permitting programs, virtually all states now do. Because the CAA allows states to adopt rules more stringent or inclusive than federal laws, the possibility of GHG-triggered permitting remains unless and until the state laws are amended. The question of what further state-level actions are required, if any, and how that affects sources within each state has about 50 different answers. 

Third, how will the Court's opinion affect EPA's ongoing efforts to regulate new and existing sources under Section 111 of the CAA? The majority's opinion appears to leave EPA's Section 111 authority intact, but this opinion may provide ammunition to rule opponents considering that Justice Kennedy - often the swing vote - sided with four other justices in casting a skeptical eye towards the scope of EPA's greenhouse gas regulation. The majority opinion explicitly warns EPA that its decision "should not be taken as an endorsement of all aspects of EPA's current approach." Other commentary in the opinion will provide fodder for argument about exactly what the Court will accept under Section 111. That will be the subject of our further analysis in the weeks to come.

For more information, please contact Vinson & Elkins lawyer Eric Groten. Visit our website to learn more about V&E's Environmental practice, or e-mail one of the practice contacts.

* Disclosure: Vinson & Elkins represented respondents the Coalition for Responsible Regulation et al.

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