Jacob Hollinger handles environmental and energy-related compliance and litigation matters for energy, manufacturing and financial sector clients. He is a former high-ranking Clean Air Act attorney for the US Environmental Protection Agency (EPA), has handled dozens of government investigations and enforcement actions and has extensive experience in all aspects of civil litigation. Read Jacob Hollinger's full bio.

In the United States, the federal Clean Air Act (CAA) requires all “major sources” of air pollution, such as power plants, refineries and other large industrial facilities, to obtain permits detailing the conditions under which those sources are allowed to operate. Such “Title V” operating permits, as they are commonly known, are typically issued by state environmental agencies but are subject to pre-issuance review by the federal Environmental Protection Agency (EPA). In fact, EPA is required to object to any proposed permit that it determines is inadequate, and the CAA also contains a public participation backstop to EPA’s oversight: where EPA fails to object to a permit, any member of the public that believes the permit is inadequate can petition EPA to make an objection.

In recent years, environmental organizations have increasingly used the petition process to challenge proposed permits, especially with respect to alleged inadequacies concerning greenhouse gas emissions. By statute, EPA is supposed to respond to such petitions within 60 days. But EPA routinely misses that deadline and now faces a sizeable backlog of pending petitions.

In late August, EPA published a proposed rule, which, if finalized, would create a series of new requirements for the submission and handling of Title V petitions. Most notably, the proposed rule would:

  • Create a new, mandatory, procedure for submitting Title V petitions to EPA;
  • Require each petition to follow a standardized format and contain certain minimum content; and
  • Impose a new requirement on state permitting agencies—a requirement that those agencies prepare written responses to all “significant comments” received from the public during the permit drafting stage.

EPA’s announcement of the proposed rule also includes a summary of EPA’s general approach to handling Title V petitions. The announcement includes, for example, a short summary of prior EPA applications of the CAA’s Title V provisions, as well as a list of “recommended practices” for state permitting agencies to follow when preparing proposed permits.

EPA is soliciting comments on its proposed rule. Comments must be received on or before October 24, 2016.

In the United States, federal agencies that license, permit or finance energy and infrastructure projects must, with some limited exceptions, analyze the environmental impacts of those projects before they approve them, pursuant to the National Environmental Policy Act of 1969 (NEPA).  But to what extent must those agencies consider climate change impacts as part of their NEPA reviews? The President’s Council on Environmental Quality (CEQ) has just issued a guidance document that addresses that question.

CEQ’s guidance document—an August 1 memorandum addressed to the heads of all federal departments and agencies—urges federal agencies to consider two climate change-related topics when conducting NEPA reviews.

The first topic is the impact of a proposed project on climate change, and the memorandum urges federal agencies to approach that topic by focusing on the project’s direct, and indirect, greenhouse gas (GHG) emissions. Agencies are encouraged to calculate a project’s anticipated emissions using existing government resources and calculators, and to draw upon existing government literature on the impacts of such emissions. The memorandum acknowledges that “the totality of climate change impacts is not attributable to any single action,” but concludes that climate-related impacts are exacerbated by some government actions and encourages agencies to compare the level of emissions expected from a proposed project to the level expected under alternative project scenarios. The memorandum provides scant details on how to calculate “indirect” GHG emissions but does suggest that for projects involving fossil fuel extraction, the indirect impacts turn, at least in part, on the anticipated ultimate use of the extracted fuel.

The second topic is the impact of climate change on the project, and on the project’s impacts.Here, CEQ’s memorandum encourages federal agencies to consider a proposed project’s impacts not simply on environmental conditions as they currently exist but as they will exist in the future and reflecting any changes that are expected as a result of climate change. Thus, if a project will draw water from a river that is already being, or that will be, diminished because of changing snowfall or rainfall patterns, that is an impact that should be acknowledged. The memorandum also encourages agencies to incorporate climate change resiliency and adaptation planning into their NEPA reviews, especially when analyzing project alternatives and potential mitigation measures. The memorandum suggests, for example, that agencies consider whether a proposed project’s design makes it more vulnerable to changing climate conditions (such as, in some areas of the country, increased risk of wildfires) than alternative projects.

CEQ’s memorandum applies to all new NEPA reviews and states that agencies “should exercise judgment” when considering whether to apply the guidance to currently ongoing reviews. CEQ states in the memorandum that it “does not expect agencies to apply” the guidance to projects for which a final environmental impact statement or environmental assessment has already been issued.

Late in the day on Tuesday, February 9, the U.S. Supreme Court stayed, for at least a year and possibly longer, the implementation of the Clean Power Plan (CPP), the US Environmental Protection Agency’s (EPA’s) widely-publicized regulations governing greenhouse gas emissions from existing coal-, oil- and gas-fired power plants.  The stay means that the CPP’s requirements and deadlines are on hold, at least until resolution of the pending legal challenges to the CPP.  But what are the broader implications of the Court’s decision?

First, the stay decision bodes poorly for the ultimate fate of the CPP, even though the Supreme Court did not opine as to the CPP’s legality.  The stay decision signals, at a minimum, that a majority of the Supreme Court is sympathetic to the challengers’ claims that the CPP is unlawful.  Indeed, it signals more than that—a distrust of EPA’s assertions about the minimal burdens imposed by the CPP.  That said, the CPP may yet survive judicial review and, even if it does not survive, EPA may be able to promulgate a replacement regulation that achieves similar results, although such a replacement would surely take several years to develop.

Second, environmentally, the stay is unlikely to have any immediate effect on emissions levels, primarily because the CPP itself does not require any immediate emissions reductions.  But that does not mean the stay has no environmental consequences.  The stay fosters uncertainty about the fate of the CPP, and one potential consequence of that uncertainty is that EPA will feel compelled to devote additional resources to reducing greenhouse gas emissions from other sources, especially the oil and gas sector.

The Obama administration has limited time to pursue such alternatives, but the next administration, if it shares President Obama’s commitment to addressing climate change, may focus much more intensively on addressing the carbon content of fuels, to make up for the delays and uncertainties created by the CPP stay decision.

The stay also raises questions about the fate of the recently secured Paris agreement, since some parties to that agreement may now be wondering whether the US is capable of meeting its commitment to reduce domestic greenhouse gas emissions 26 to 28 percent from 2005 levels by 2025.  If other countries doubt the reliability of the US commitment, they may be less bold about seeking emissions reductions themselves.  Indeed, it is precisely such doubts that may drive EPA to pursue more oil and gas regulations.

Finally, lurking in the Supreme Court’s action may be a deeper signal about the fate of the Chevron doctrine, a topic that should be of interest to all entities subject to regulation in the United States, not just to those subject to the Clean Air Act.  A recurring theme in the legal challenges to the CPP is that the CPP raises questions of such extreme economic and political significance that EPA is not entitled to deference as to how those questions should be resolved.  It is not clear what role that theme played in the Supreme Court’s stay decision—because the Court’s order does not explain the Court’s reasoning—but it is striking that the Court took the rare and generally unexpected step of staying the implementation of an agency regulation even before any lower court had ruled on the legality of that regulation.  If nothing else, the stay decision confirms that the Clean Air Act remains a central, if not the central, battleground in questions over the level of deference that courts owe to administrative agencies.

The U.S. Environmental Protection Agency (EPA) signed a new air pollution rule in September that illustrates how EPA is implementing its next generation compliance ideas.  The rule governs hazardous air emissions from petroleum refineries, but features several “next gen” tools that are relevant to other types of facilities, especially chemical plants and oil and gas storage facilities.

Next Gen Tools Found in the New Refinery Rule

EPA’s next generation compliance initiative seeks to modernize the agency’s regulations and enforcement efforts.  The initiative encourages the use of new technologies for detecting air emissions, aims to incentivize compliance and emissions reductions, rather than relying primarily on the threat of enforcement, and also encourages greater public disclosure of environmental data.  Many of these ideas are on display in the new refinery rule.

First, the rule requires “fenceline monitoring” of benzene concentrations and corrective action if benzene levels are detected above a baseline level.  This is the first time EPA has required fenceline monitoring and related corrective action measures on such a large scale.

Second, the rule requires electronic reporting of the fenceline monitoring data.  That is important not simply because it will enhance EPA’s ability to bring timely enforcement actions, but also because it is a prelude to public disclosure of the monitoring data.  EPA has explained that it intends to develop a publically accessible database of the fenceline monitoring results.

Third, the rule illustrates EPA’s evolving approach toward so-called “upset” or “malfunction” events.  Historically, many EPA air regulations excused compliance during periods of equipment malfunction.  EPA has begun rolling back those malfunction exceptions and, in the new refinery rule, the agency adopts an approach to malfunction events that it will likely seek to apply to other industrial facilities going forward, especially those that use flares and pressure relief devices (PRDs).  The new rule aims to minimize the use of flares and PRDs, in part because of recent studies suggesting that flares and PRDs can themselves be large sources of air pollution.  The rule limits the number of flaring and PRD events that are permitted, requires refinery operators to develop flare management plans (to reduce flare use) and requires certain corrective actions to be taken after each flaring or PRD event.

Fenceline Monitoring Issues

The rule’s fenceline monitoring and corrective action requirements deserve special attention.  Those features of the rule are intended to improve the control of so-called “fugitive” emissions, emissions that, generally speaking, leak out of industrial equipment rather than being expelled out an exhaust stack where they can be more easily subjected to pollution control devices.  Many other types of facilities experience fugitive emissions, including chemical plants, distilleries, oil and gas storage terminals, and wastewater treatment plants.  Thus, the new refinery rule provides a glimpse of a possible regulatory future for many other industrial activities.

A critical issue in this context is how the fenceline monitoring data will be used.  Do high levels of a hazardous air pollutant, standing alone, establish a violation, or is something more required?  In the new refinery rule, mere detection of high benzene levels does not itself constitute a violation, but a violation may occur if the refinery owner or operator fails to take prompt action to reduce the high levels after detecting them.

Conclusion

The new refinery rule appears to be EPA’s most extensive illustration of the agency’s next generation compliance ideas to date.  Companies that own or operate industrial facilities should pay special attention to how the rule is implemented in the coming years, since the rule’s implementation will likely provide important insights into how well EPA’s next generation ideas function in practice.

The U.S. Supreme Court held this morning that the U.S. Environmental Protection Agency (EPA) acted unreasonably when it determined in 2000, and again in 2012, that it was “appropriate and necessary” to regulate mercury emissions from coal-fired power plants.  The central flaw in EPA’s reasoning, the Court held, is that the agency failed to consider the cost of regulation when making the threshold determination that regulation was “appropriate.”  Under Section 112 of the federal Clean Air Act, EPA must conclude that it is “appropriate” to regulate power plant mercury emissions before it can actually regulate those emissions.

The immediate effect of today’s decision is that the ongoing challenge to EPA’s mercury regulations will be remanded to the U.S. Court of Appeals for the D.C. Circuit, which previously upheld those regulations.  The D.C. Circuit will then face a choice:  Should it vacate the regulations, or should it leave them in place while giving EPA additional time to attempt to justify the agency’s threshold conclusion that the regulations are “appropriate.”

In the past, the D.C. Circuit has sometimes vacated environmental regulations that it found to suffer from threshold flaws, but it has also occasionally left those regulations in place pending agency revisions.  For example, several years ago the D.C. Circuit found that EPA’s Clean Air Interstate Rule (CAIR) was fatally flawed but it nevertheless declined to vacate CAIR.  Instead, it left CAIR in place pending promulgation of a replacement rule.  It remains to be seen whether the D.C. Circuit will take such an approach here.

If the mercury regulations are vacated, today’s decision may have the ironic effect of helping EPA defend its forthcoming greenhouse gas (GHG) regulations for existing power plants.  One of the principal legal objections to the forthcoming GHG regulations is that EPA allegedly lacks authority to issue them because power plants are regulated for mercury emissions.  Thus, if the mercury regulations go away, one of the principal objections to the GHG regulations will be eliminated.

Nevertheless, today’s decision has to be considered a loss for EPA.  The power plant mercury regulations took over two decades to promulgate and were anticipated to have significant environmental benefits, primarily in the form of reductions of particulate matter and sulfur dioxide emissions.  Today’s decision creates some uncertainty about the future of those regulations.  Equally important, today’s decision is another reminder that a majority of the Supreme Court remains deeply skeptical of EPA’s claims about the agency’s statutory authority.

If there is a silver lining for EPA in today’s decision, it is that the Supreme Court did not go so far as to dictate exactly how EPA is to consider costs.  Instead, the Court concluded:  “It will be up to the Agency to decide (as always, within the limits of reasonable interpretation) how to account for cost.”

The U.S. Environmental Protection Agency (EPA) is expected to announce between now and December 31, 2014 its plan for pursuing methane reductions from the oil and gas sector – including whether it will propose new emission reduction regulations.  Additionally, the agency recently modified its greenhouse gas (GHG) reporting rules for oil and gas systems and also proposed expanding those rules so that they would cover many additional oil- and gas-related sources.  This blog post briefly summarizes these recent developments.

Where is EPA Headed with Respect to New Emission Reduction Requirements?

In his March 2014 Methane Reduction Strategy, President Obama directed EPA to study opportunities for reducing methane emissions from the oil and gas sector and to make a determination by this fall as to how best to pursue further reductions.  EPA has yet to announce its “determination” but it is widely anticipated that EPA will not propose new methane capture or leak detection and repair (LDAR) regulations; instead, EPA is generally expected to continue promoting voluntary emission reduction efforts.  But the agency remains under pressure from environmental organizations to actually require emission reduction measures, such as new mandatory LDAR requirements.  For example a recent report by a coalition of environmental organizations asserts that new LDAR regulations focused on methane, coupled with other mandatory methane reduction measures, could “reduce the sector’s methane pollution in half in just a few years.”

New GHG Reporting Requirements Take Effect January 1, 2015, and EPA has also Proposed a Significant Expansion of the Reporting Rules

Although EPA may not propose new methane emission reduction regulations, it is clearly interested in improving the range and quality of methane emission data that it receives – and that it makes available to the public.  Thus, on November 13, 2014, EPA signed a final rule (published in the Federal Register on November 25, 2014) modifying the existing GHG reporting requirements for the oil and gas sector to clarify the exact equipment covered by the regulations and the precise methods that can be used to calculate emissions from that equipment.  The modifications take effect on January 1, 2015 and apply to emissions occurring in 2015.

EPA also just signed a proposed rule that would expand the oil and gas sector GHG reporting requirements to several additional categories of equipment and activities.  The proposed rule has not yet been published in the Federal Register, but it would expand the reporting requirements to include, among other sources, gathering and boosting facilities, completions of fractured oil wells (currently, the rules cover fractured gas wells) and natural gas transmission pipeline blowdowns.  The proposed rule also discusses emission calculation methodologies and the confidentiality of data reported to EPA.  Indeed, the proposed rule lists several categories of emission and equipment-related data and proposes to designate much of that information as not confidential.  That feature of the proposal reflects the agency’s ongoing emphasis on “next generation compliance,” one element of which is greater public availability of environmental data.  Comments will be due 60 days after the proposed rule is published in the Federal Register.

The U.S. Environmental Protection Agency (EPA) issued a proposed rule on September 5, 2014 that would prevent states from including affirmative defenses in their Clean Air Act state implementation plans (SIPs) for emissions exceedances that occur during startup, shutdown and malfunction (SSM) periods.  The proposal would also require several states to revise their existing SIPs so as to conform with EPA’s new approach to affirmative defenses.

EPA’s proposal modifies an earlier February 2013 proposal and arises from a Sierra Club petition asking EPA to revise roughly 40 different SIPs.  Under the new proposal, EPA would largely grant Sierra Club’s petition rather than granting it only as to certain types of affirmative defenses, as EPA had previously proposed.   A list of the states affected by the proposed rule can be found on EPA’s rulemaking website.  If the rule is finalized as proposed, those states will have 18 months from the date of the final rule to submit revised SIPs.

EPA has long allowed the use of affirmative defenses in SIPs, with at least one court holding that it has the authority to do so.  But in April of this year, the D.C. Circuit held that the plain language of the Clean Air Act prohibits EPA from including affirmative defenses in its own non-SIP regulations under Clean Air Act Section 112.  EPA’s September 5 proposal extends the logic of that decision to the SIP context.  But regulated parties should also be aware that the new proposal provides a good illustration of EPA’s “Next Generation Compliance” initiative in action.  The proposal is consistent with the agency’s stated desire to simplify its regulations by reducing the number of exceptions contained in those regulations.

Regulated parties may fear that under EPA’s new proposal they will be unduly penalized for emissions exceedances caused by events beyond their control.  They can take some comfort in understanding that even without affirmative defenses, the Clean Air Act’s penalty provisions do allow the agency and the courts some discretion in setting penalty amounts.  Thus, going forward, facility owners that experience an emission exceedance because of events beyond their control can still argue, on a case-by-case fact-specific basis, that it would be inappropriate to impose any penalties.

Comments on EPA’s proposal are due by November 6, 2014, and, under the terms of a settlement agreement with Sierra Club and WildEarth Guardians, EPA is required to issue a final rule by May 22, 2015.

The U.S. Supreme Court today partly upheld and partly rejected the U.S. Environmental Protection Agency’s federal Clean Air Act permitting regulations governing greenhouse gas (GHG) emissions from stationary sources.  The decision is mostly a victory for EPA, and its narrow scope means that it will almost certainly not disrupt, let alone invalidate, EPA’s ongoing Section 111(d) rulemaking to set GHG emission limits for existing power plants.  At the same time, the decision does not necessarily mean that EPA’s 111(d) proposal is free from legal challenge.  That is because the decision does not address 111(d).

Today’s decision concerns the Clean Air Act’s two stationary source permitting programs – the prevention of significant deterioration (PSD) program and the Title V program.  In 2010, EPA announced that it was including GHG emissions within the scope of both programs.  Various states and industry groups challenged that announcement, and today, the Supreme Court partly agreed and partly disagreed with the challengers.

First, five justices (Scalia, Roberts, Kennedy, Alito and Thomas) held that a source’s GHG emissions, standing alone, cannot trigger the obligation to undergo PSD and Title V permitting.  That part of the decision is a loss for EPA.  But the second part of the decision is a victory for the agency.  Seven justices (Scalia, Roberts, Kennedy, Ginsburg, Beyer, Sotomayor and Kagan) held that EPA can require sources that are subject to PSD “anyway,” because they emit other types of pollutants in significantly large quantities, to control their GHG emissions.  In sum, GHG emissions cannot trigger the obligation to undergo PSD permitting, but EPA can use the PSD permitting process to impose source-specific GHG emission limits on facilities that trigger the process for other reasons.

The decision does not address EPA’s authority to impose substantive limits on GHG emissions using other statutory provisions such as Clean Air Act Section 111(d).  Readers interested in the ongoing debate over EPA’s Section 111(d) authority may wish to log into a complimentary webinar that McDermott is offering on Thursday, June 26.  The webinar will discuss EPA’s recent 111(d) proposal for existing power plants and will cover various topics that affected parties may want to address during the public comment period on that proposal.  Click here to register.

The U.S. Environmental Protection Agency’s proposed greenhouse gas (GHG) regulations for “new” and “existing” power plants have received substantial media attention, but regulated parties should also be aware of the third piece of EPA’s self-styled “Clean Power Plan”:  Proposed carbon dioxide (CO2) emission limits for “modified” and “reconstructed” electricity generating units (EGUs).

EPA proposed CO2 limits for “modified” and “reconstructed” EGUs on June 2, 2014, the same day it issued its proposed regulations for existing power plants, but it did not release its proposed regulatory text for those limits until several days later.  The proposed regulatory text is now available on EPA’s website, and power plant owners and operators should scrutinize it carefully – it amends the proposed regulatory text that EPA released in January 2014 in connection with its proposed limits for “new” power plants.

As defined in EPA’s regulations, “modified” units are existing units that undergo a physical or operational change that results in an increase in their hourly rate of air emissions, while “reconstructed” units are existing units where components have been replaced to such an extent that the fixed capital cost of the new components exceeds 50 percent of the fixed capital cost that would be required to construct a comparable entirely new facility, and it is technologically and economically feasible to meet the emission standards set by EPA.

Under EPA’s June 2 proposal, neither modified nor reconstructed steam units would have to install carbon capture and storage technology or meet the more stringent CO2 emission standards that EPA has proposed for newly constructed units.  Instead, those units would be required to meet an emission standard based on a combination of best operating practices and equipment upgrades (to improve the unit’s efficiency).  Modified gas turbines would be required to meet the corresponding emission limits for new gas turbines.

More specifically, the proposal would set different standards of performance for different types of units, as follows:

  • Modified fossil fuel-fired EGUs (i.e., utility boilers and integrated gasification combined cycle (IGCC) units):  the source must meet a EGU-specific emission limit (a) determined by the EGU’s best historical annual CO2 emission rate from 2002 to the date of modification, plus an additional 2 percent emission reduction, or (b) determined depending on whether the modification occurs before or after the EGU becoming subject to a Clean Air Act Section 111(d) state plan.  For option (a), the limit must be at least 1,900 pounds of CO2 per net megawatt-hour (lb/MWh-net) for sources with a heat input exceeding 2,000 million British thermal units per hour (MMBtu/h), or 2,100 lb/MWh-net for sources with a heat input of 2,000 MMBtu/h or less.
  • Reconstructed fossil fuel-fired EGUs:  sources with a heat input exceeding 2,000 MMBtu/h must meet a limit of 1,900 lb/MWh-net, and sources with a heat input of 2,000 MMBtu/h or less must meet a limit of 2,100 lb/MWh-net.
  • Modified or reconstructed natural gas-fired stationary combustion turbines:  sources with a heat input exceeding 850 MMBtu/h must meet a limit of 1,000 pounds of CO2 per gross megawatt-hour (lb/MWh-gross), and sources with a heat input of 850 MMBtu/h or less must meet a limit of 1,100 lb/MWh-gross.

Importantly, modified and reconstructed units that are modified or reconstructed after they become subject to a state plan for existing power plants would remain subject to that plan (in addition to being subject to the limits set forth above) even after their modification or reconstruction.

EPA estimates that few EGUs would be affected by the rulemaking, and estimates compliance costs of $0.78 million to $4.5 million (in 2011) and CO2 reductions of 133,000 to 266,000 tons in 2025.  EPA estimates combined climate benefits from CO2 reductions (and health co-benefits from SO2, NOx and PM2.5 reductions) of $18 million to $33 million at a 3 percent discount rate for emission reductions in 2025 for the lowest emission reduction scenario, and $35 million to $65 million at a 3 percent discount rate for emission reductions in 2025 for the highest emission reduction scenario.

The proposed standards would apply at all times, including during startup, shutdown and malfunction periods.  The proposal articulates the same continuous monitoring requirements, emissions performance testing requirements, continuous compliance requirements, and notification, recordkeeping and reporting requirements as those proposed for newly constructed sources in EPA’s January 2014 proposal.

Once the full proposed rule concerning modified and reconstructed plants is published in the Federal Register, interested parties will have 120 days to comment.  EPA will hold joint public hearings for this proposal and the proposal concerning CO2 emissions from existing power plants.

The U.S. Environmental Protection Agency (EPA) released its long-anticipated proposal for regulating greenhouse gas emissions from existing power plants on June 2, 2014, to much fanfare.  The proposal is simpler than it looks.  Here are the key points.

1.  The Proposed Rule is Only 38 Pages Long.  It’s the “Justification” That Takes up Space.  Many observers have been overwhelmed by the sheer volume of material associated with the EPA’s proposal – a 607-page preamble, a “legal memorandum” defending the proposal, a “regulatory impact analysis” discussing the proposal’s impacts and several “technical support documents.”  All of that material is important, but if you want to understand the heart of what EPA is proposing, focus on the draft regulatory text – the actual proposed rule.  Read the other material if you want to understand EPA’s justification for the rule.

2.  The Gist of the Proposed Rule: Target Rates and State Compliance Plans.  The rule applies to state governments, not to power plant owners and operators.  The rule requires each state to submit a plan to EPA showing how that state will reach a target CO2 emission rate for its existing power plants (coal, oil and gas) by 2030, as well as how the state will reach an interim target rate for the years between 2020 and 2029.   Thus, the rule has two parts: the “target rate,” and the requirement that each state submit a plan for reaching the target rate.  The target rate is going to be the most controversial aspect of the rule.  EPA set a different target rate for each state, and the manner in which it did so is what the fight is going to be about.  As for how to achieve the target rate, that is a bit less controversial because EPA has given the states a lot of flexibility.  In essence, the states can get to their targets however they want – by mandating heat rate improvements, by implementing a cap-and-trade system, by reducing demand for electricity – as long as they demonstrate that their plan will in fact get them there.

3.  The Easiest Way to Comply:  Follow RGGI.  The easiest way for states to comply with this proposed rule is to develop and participate in a program like the Regional Greenhouse Gas Initiative (RGGI).  Participating in a RGGI-type cap-and-trade program may not get every state all the way to its target rate, but it will help many states get a long way toward that goal.  Equally important, RGGI is a relatively simple cap-and-trade system.  That means that implementing a RGGI-like program faces fewer bureaucratic and legal obstacles than some of the other compliance mechanisms available to the states.

4.  The Proposal Raises at Least Three Overarching Legal Questions. 

First, does EPA have authority to issue the rule in the first place?  This question turns on the language of Clean Air Act (CAA) Section 111(d).  Some lawyers contend that rather than authorizing EPA to regulate power plant greenhouse gas emissions, Section 111(d) actually prohibits such regulations.  But EPA’s response is a strong one:  Section 111(d) is subject to more than one possible interpretation and it is not unreasonable (for a variety of reasons) to read the provision as allowing EPA’s rule.  And that is the analysis that courts will conduct:  Does the statute unambiguously preclude EPA from issuing the rule?  If courts agree with EPA that the answer is “no,” they will almost certainly agree that the statute permits EPA to issue the rule.

Second, can EPA defend the target rates?  EPA set the target rates by choosing a “best system of emission reduction,” or BSER, and then applying that BSER on a state-by-state basis.  Notably, EPA chose a BSER that involves a combination of “unit-level” emission reduction measures (heat rate improvements at coal plants) and “grid-level” emission reduction measures (such as cap-and-trade programs).  Many commentators contend that EPA cannot include “grid-level” measures in the BSER, while others insist that EPA must include such measures.  Courts will resolve the disagreement by asking whether the statute unambiguously precludes EPA’s approach, and if not, whether that approach is otherwise reasonable and consistent with the statute.  A related question is whether EPA applied the BSER properly – did it choose reasonable rates?  Some parties will likely argue that EPA’s target rates are not stringent enough; indeed, that was the initial reaction from many in the environmental community.  But a deeper issue is whether it was permissible for EPA to set different target rates for different states.  That issue deserves careful scrutiny going forward.

Third, is each compliance option available to the states equally lawful?  Here, a critical issue is whether the text of the CAA requires states to impose emission limits solely on power plants or whether, as EPA concludes, states can achieve their emission targets by imposing obligations on other types of entities.  This issue deserves careful scrutiny going forward, but many states may choose to avoid the question altogether by pursuing a RGGI-type program as the backbone of their compliance plans.

These legal questions are a big part of why EPA’s preamble and technical support documents also discuss various “alternative” proposals.  You can think of those alternative proposals as EPA’s “backup plan” – a less stringent version of the proposal in case EPA decides that its preferred approach faces insurmountable legal or political obstacles.

5.  Next Steps.  After EPA publishes the preamble and proposed rule in the Federal Register, interested parties will have 120 days to submit comments.  EPA is expected to finalize the rule (possibly in modified form, reflecting the comments it receives) by June 1, 2015.  States would be required to submit their compliance plans to EPA by June 30, 2016, but one-year extensions would be available and there is even more time available for states that submit a multi-state compliance plan – such as a RGGI-type proposal.   Emission reductions have to begin by 2020, so as to meet the interim target rates.