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Clean Air Act

The Carbon Tax Checklist

by Jacob Hollinger, Heather Cooper and Carl J. Fleming | Feb 12, 2021 | Environmental, Natural Gas, Renewables, Tax, U.S. Congress

Many stakeholders have called for the United States to adopt a carbon tax. Such a tax could raise billions of dollars in annual revenue while simultaneously reducing greenhouse gas emissions. Several carbon tax proposals were introduced in the last Congress (2019-2020 term), and it is likely that several more will be introduced in the new Congress. Several conservative economists have endorsed the idea, as has Janet Yellen, President Biden’s Secretary of the Treasury. But the details of a carbon tax matter—for revenue generation, emissions reductions and fairness. Because Congress is likely to consider several competing carbon tax proposals this year, this article provides a way to compare proposals with a checklist of 10 questions to ask about any specific legislative carbon tax proposal, to help understand that proposal’s design and implications.

1. What form does the tax take: Is it an emissions tax, a fuel tax or a production tax?

The point of a carbon tax is to reduce greenhouse gas emissions by imposing a price on those emissions. But there is more than one way to impose that price. Critically, the range of options depends, to a very large degree, on the type of greenhouse gas the tax is trying to address.

The most ubiquitous greenhouse gas is carbon dioxide (CO2) and the largest source of CO2 emissions is the combustion of fossil fuels. Those emissions can be addressed by imposing a fee on each individual emission source or by taxing the carbon content of the fuel—because carbon content is a reliable predictor of CO2 emissions across different combustion circumstances. Most carbon tax proposals are fuel tax proposals; they impose a tax on fuel sales, corresponding to the amount of CO2 that will be emitted when the fuel is burned.

For CO2 emissions, the fuel tax approach has one significant advantage over the emissions fee approach. The fuel tax can be imposed “upstream,” rather than “downstream,” thereby reducing the total number of taxpayers and the overall administrative burdens associated with collecting the tax. A tax imposed on petroleum products as they leave the refinery, for example, is a way to address CO2 emissions from motor vehicles without the need to tax every individual owner of a gasoline-powered car. Most CO2-related carbon tax proposals work that way—they are upstream fuel taxes rather than downstream emissions taxes.

But not all greenhouse gas emissions can be addressed through a fuel tax, because not all greenhouse gas emissions come from fossil fuel combustion. Methane, for example, is released in significant quantities from cows, coal mines and natural gas production systems. A carbon tax directed at those emissions is likely to take the form of an emissions fee imposed on the owner or operator of the emission source. Many carbon tax proposals, however, simply ignore methane emissions or expressly exempt agricultural sources.

Fluorinated gases are yet another type of greenhouse. If they are subjected to a carbon tax, that tax is likely to take the form of a production tax, which would be imposed [...]

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How Energy Company Buyers Can Limit Environmental Liability Risk

by Jacob Hollinger and Darren Azman | Jun 1, 2020 | Enforcement Defense, Environmental, Natural Gas, Project Development and Finance, Renewables

Many energy companies may be driven into bankruptcy because of the COVID-19 pandemic. Third parties seeking to purchase those companies’ assets may be concerned about potential successor liability for the seller’s environmental obligations. This article highlights some steps that asset purchasers in bankruptcy can take to reduce the risk of such liability.

Successor liability exists under each of the major federal environmental laws. Four especially important statutes for energy companies are the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, the Resource Conservation and Recovery Act, the Clean Water Act and the Clean Air Act.

Access the full article.

Clean Air Act Permit Challenges — New Rules On the Way

by Julie Herward McConnell and Jacob Hollinger | Sep 6, 2016 | Environmental

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.

Implications of the Clean Power Plan Stay

by Jacob Hollinger | Feb 12, 2016 | Environmental

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 [...]

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What Comes Next for Mercury Emissions from Power Plants?

by Jacob Hollinger | Jun 29, 2015 | Environmental

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.”

EPA Proposes to Eliminate Affirmative Defenses for Many Clean Air Act Violations

by McDermott Will & Emery and Jacob Hollinger | Sep 16, 2014 | Environmental

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 Supreme Court’s Greenhouse Gas Permitting Decision – What Does It Mean?

by Jacob Hollinger | Jun 23, 2014 | Environmental

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.

EPA’s Proposed Power Plant Regulations – Simpler Than You Think

by Jacob Hollinger | Jun 4, 2014 | Environmental

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 [...]

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New Legislation Would Vacate Proposed Carbon Pollution Standard for New Power Plants

by McDermott Will & Emery | Oct 31, 2013 | Environmental, U.S. Congress

by Bethany K. Hatef

Congressman Ed Whitfield (R-KY.), the chairman of the House Energy and Commerce Committee’s Energy and Power Subcommittee, introduced a bill on October 28, 2013 that would void the U.S. Environmental Protection Agency’s (EPA) pending proposed rulemaking, regulating emissions of carbon dioxide from new coal-fired and natural gas-fired power plants. Representative Whitfield worked closely with Senator Joe Manchin (D-WV), who will introduce the same bill in the Senate. The legislation, if enacted, would impose restrictions on EPA’s issuance of any new proposal to regulate greenhouse gas (GHG) emissions from new and existing power plants, and could hinder EPA’s ability to comply with President Obama’s directive to regulate carbon emissions from existing power plants by June 1, 2015. In connection with the legislation, coal miners and coal companies rallied on Capitol Hill in protest of EPA’s current proposed regulation limiting carbon emissions at new power plants, and the House Energy and Commerce Committee oversight panel held a hearing, entitled “EPA’s Regulatory Threat to Affordable, Reliable Energy: The Perspective of Coal Communities.”

The bill states that EPA may not issue, implement or enforce any proposed or final rule pursuant to Section 111 of the Clean Air Act that establishes a standard of performance for GHG (defined as carbon dioxide, methane, nitrous oxide, sulfur hexafluoride, hydrofluorocarbons and perfluorocarbons) emissions from a new source that is a fossil fuel-fired electric utility generating unit (EGU) unless EPA: (1) establishes separate standards for coal and natural gas EGUs; (2) for the coal category, sets a standard that has been achieved for at least one continuous 12-month period by at least six EGUs at different plants in the U.S.; and (3) establishes a separate subcategory for new EGUs that use coal with an average heat content of 8300 or less British Thermal Units per pound (i.e., lignite coal) and sets a standard for such EGUs that has been achieved for at least one continuous 12-month period by at least three EGUs at different plants in the U.S.

The bill specifies that the EGUs used as the basis for the coal and lignite coal categories must collectively represent the operating characteristics of electric generation at different U.S. locations and EPA may not use results obtained from “a project to test or demonstrate the feasibility of carbon capture and storage technologies that has received government funding or financial assistance”).

The legislation states that any rule or guidelines addressing GHG emissions from existing, modified or reconstructed fossil fuel-fired EGUs will not be effective unless a federal law is first enacted specifying the effective date, and EPA has submitted a report to Congress containing the text of the rule, a description of its economic impacts, and the rule’s projected effects on global GHG emissions. Finally, the legislation expressly repeals EPA’s prior proposed rulemakings establishing carbon dioxide limits for new EGUs.

Power Plant Cases in the Supreme Court

by McDermott Will & Emery | Oct 7, 2013 | Environmental

by Jacob Hollinger

The Supreme Court’s 2013 term just began but it is already shaping up to be an important one for power plant owners and operators. Three points stand out: First, on October 7, the Court denied cert. in Luminant Generation Co. LLC v. EPA, a case in which several power companies were challenging the Environmental Protection Agency’s (EPA) current approach to regulating air emissions during startup, shutdown and malfunction (SSM) events. The Court’s action leaves in place a Fifth Circuit decision which upheld EPA’s approach, at least as applied to the Clean Air Act state implementation plan (SIP) for the State of Texas. More importantly, the Court’s action is likely to bolster EPA’s confidence as it pursues its ongoing rulemaking concerning the SSM provisions in 39 other SIPs, a rulemaking in which EPA has proposed eliminating affirmative defenses for excess emissions that occur during “planned” SSM events. More information about EPA’s ongoing SSM rulemaking can be found here: https://www.epa.gov/airquality/urbanair/sipstatus/emissions.html.

Second, the Court is actively considering whether to hear an industry challenge to EPA’s regulation of greenhouse gases under the Clean Air Act’s (CAA) prevention of significant deterioration (PSD) program. The Court currently has before it eight cert. petitions seeking review of the D.C. Circuit’s August 2012 decision in Coalition for Responsible Regulation v. EPA, 684 F.3d 102 (D.C. Cir. 2012). That decision rejected industry challenges to EPA’s four “core” greenhouse gas (GHG) regulations – the Endangerment Finding, in which EPA concluded that carbon dioxide emissions from motor vehicles contribute to air pollution reasonably anticipated to endanger public health and welfare; the Tailpipe Rule, in which EPA set motor vehicle GHG emission limits; the Timing Rule, in which EPA announced that GHGs are “subject to regulation” under the CAA as of January 2, 2011; and the Tailoring Rule, in which EPA announced that with respect to GHG emissions it was raising the statutory threshold for PSD applicability. A central point of dispute in the Coalition matter is whether EPA’s conclusion that it is required to regulate motor vehicle GHG emissions means that EPA must also regulate stationary source GHG emissions. We should know shortly whether the Supreme Court will address that dispute.

Finally, the Court is scheduled to hear oral argument on December 8 concerning EPA’s Cross State Air Pollution Rule, a rule which the D.C. Circuit invalidated last summer. The Supreme Court’s eventual decision in that case, EPA v. EME Homer City Generation, L.P., No. 12-1182, is likely to be extremely significant for power plant owners regardless of which side prevails. A ruling in EPA’s favor will reinstate stringent emission limits on upwind power plants, but a ruling against EPA may simply lead to more stringent emission limits being imposed in downwind states. In all events, the case concerns a complex and difficult problem – interstate air pollution – and the Supreme Court’s decision is likely to clarify EPA’s authority to address that problem.

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