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Clean Air Act

EPA Proposes CO2 Emission Limits for New Power Plants and on Track to Regulate CO2 Emissions from Existing Plants by 2015

by McDermott Will & Emery | Sep 23, 2013 | Environmental, Power Markets, Project Development and Finance

The U.S. Environmental Protection Agency (EPA) has issued a proposed rule concerning carbon dioxide (CO2) emissions from new coal-fired and natural gas-fired power plants. The September 20 proposal meets a deadline set by President Obama in a June 25 Presidential Memorandum and keeps EPA on track to meet the President’s June 2015 deadline for regulating emissions from existing power plants. Once the September 20 proposed rule is published in the Federal Register, interested parties will have 60 days to comment on it.

Under EPA’s September 20 proposal, which replaces an earlier, April 2012 proposal, new coal plants would be limited to 1,100 pounds of CO2 emissions per megawatt-hour (lbs/MWh) of electricity produced, with compliance measured on a 12-operating month rolling average basis. The proposed rule would also require new small natural gas plants to meet a 1,100 lbs/MWh emission limit, while requiring larger, more efficient natural gas units to meet a limit of 1,000 lbs/MWh.

EPA is required to set emission limits for new plants at a level that reflects use of the “best system of emission reduction” (BSER) that it determines has been “adequately demonstrated.” For coal, EPA has determined that the BSER is installation of carbon capture and sequestration (CCS) technology that captures some of the CO2 released by burning coal. In essence, EPA is saying partial CCS is the BSER for new coal plants. But for gas, EPA is saying that the BSER is a modern, efficient, combined cycle plant. Thus, CCS is not required for new gas plants.

An important feature of the proposed rule is the definition of a “new” plant. Under the pertinent section of the Clean Air Act (CAA), a “new” plant is one for which construction commences after publication of a proposed rule. EPA’s regulations, in turn, define “construction” as the “fabrication, erection, or installation of an affected facility,” and define “commenced” as undertaking “a continuous program of construction” or entering “into a contractual obligation to undertake and complete, within a reasonable time, a continuous program of construction.”

EPA has concluded that its new proposal will have “negligible” benefits and costs – it won’t reduce CO2 emissions and it won’t raise the cost of electricity. This is based on EPA’s conclusion that even in the absence of the new proposed rule, all foreseeable new fossil fuel plants will be either modern, efficient combined cycle natural gas plants or coal plants that have CCS. In essence, EPA is proposing emission limits that it thinks would be met even in the absence of new regulations.

But if the rule won’t reduce CO2 emissions, why issue it? First, EPA is of the view that it is required by the CAA to issue the rule; having already determined that CO2 emissions are endangering public health and welfare, EPA is required by § 111(b) of the CAA to publish regulations to address those emissions. Second, EPA thinks the rule will provide regulatory certainty about what is expected of new plants. Third, and perhaps most importantly, the rule [...]

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Third Circuit PSD Decision is a Loss for EPA, But Also Contains Warnings for Power Plant Owners

by McDermott Will & Emery | Sep 4, 2013 | Environmental

by Jacob Hollinger

The federal Environmental Protection Agency (EPA) suffered an important loss on August 21 when the U.S. Court of Appeals for the Third Circuit affirmed the dismissal EPA’s prevention of significant deterioration (PSD) enforcement action against the current and former owners of Pennsylvania’s coal-fired Homer City Generating Station.

In United States v. EME Homer City Generation, L.P., No. 11-4408 (3d Cir. Aug. 21, 2013), the Third Circuit held that although the Clean Air Act’s PSD provisions prohibit plant owners from modifying their facilities without getting a PSD permit and implementing the best available control technology (BACT), those provisions do not prohibit operating modified facilities without those items. That means that owners who acquire a plant after it has been modified may be shielded from PSD liability for those modifications and may be able to avoid having to install costly pollution control equipment. The decision also contains many other important holdings and is a significant loss for EPA.

Some commentators have suggested that the Homer City decision may spell the end of EPA’s PSD enforcement initiative against older coal-fired power plants. But do not expect EPA (or other plaintiffs) to give up so easily. The decision depends in part on the nuances of the Pennsylvania state implementation plan (SIP), which may differ from other SIPs, and EPA may find other ways to distinguish the decision. EPA may also seek Supreme Court review.

Just as important – perhaps even more important – the Homer City decision points to three things that power plant owners will want to be conscious of going forward:

First, the decision all but encourages EPA to investigate planned equipment upgrades, not just past upgrades that might have triggered PSD obligations. The court explained: “we see no reason why the EPA and States lack authority to require the advance reporting of some or all proposed changes to facilities, whether or not they rise to a modification.”

Second, the decision may also prompt EPA to pay greater attention to Title V permit renewal applications for power plants. One significant feature of the decision is that it rejects, on jurisdictional grounds, EPA’s contention that the plant’s existing Title V operating permit was incomplete (because it failed to contain a requirement to use BACT). If EPA cannot complain about “incomplete” operating permits during enforcement actions, it may become more aggressive about raising PSD-related concerns during the permitting process.

Third, the court’s discussion of civil penalties for PSD violations is eye-opening. The court cautioned that where a plant owner modifies a plant in violation of the PSD requirements, civil penalties may not be limited to merely one day of violation. Rather, civil penalties may be available for each day that the modification is underway. For a modification that takes a month-long outage to implement, that could result in penalties greater than $1 million per modification.

Does the Clean Air Act Preempt State Law Nuisance Claims Against Power Plants?

by McDermott Will & Emery | Aug 30, 2013 | Environmental

by Jacob Hollinger

Last week, the U.S. Court of Appeals for the Third Circuit said “no” and the decision has already prompted at least one new air emissions lawsuit against a power plant owner.

In Kristie Bell, et al. v. Cheswick Generating Station, GenOn Power Midwest, L.P., No. 12-1426 (3d Cir. Aug. 20, 2013), the Third Circuit held that the Clean Air Act (CAA) does not prevent Pennsylvania residents from alleging that air emissions from a Pennsylvania power plant have created a nuisance under Pennsylvania state law. The decision holds, in essence, that the CAA’s “comprehensive” scheme for regulating air emissions is not so comprehensive as to preempt all air-related tort claims.

The Bell decision turns on the fact that the plaintiffs are relying on state tort law against an in-state source of air pollution; they are not relying on federal common law or trying to impose Pennsylvania’s tort law on an out-of-state source. The decision means that the plaintiffs – a putative class of individuals who live or own property within one mile of GenOn’s Springdale, Pennsylvania, coal-fired Cheswick Generating Station – will be able to press forward with their assertion that the facility’s particulate matter and other emissions have harmed their property, thereby entitling them to money damages under nuisance, negligence and trespass theories.

But the plaintiffs still have to prove their case, which may be difficult to do. The Fourth Circuit previously addressed similar nuisance claims arising under Alabama and Tennessee state law in North Carolina, ex rel. Cooper v. Tenn. Valley Auth., 615 F.3d 291 (4th Cir. 2010), and concluded that the plaintiffs there could not state a public nuisance claim because they were complaining about emissions that were expressly allowed by the defendant’s operating permits. The Bell plaintiffs, whose lawyers commenced a similar lawsuit against a second coal-fired power plant just days after the Bell decision came down, may face a similar problem under Pennsylvania nuisance law.

Obama’s Climate Plan Provides Timeline to Reduce Carbon Emissions at New and Existing Power Plants

by McDermott Will & Emery | Jun 26, 2013 | Environmental

by Bethany K. Hatef

Following up on his Inaugural Address promise to prioritize climate change, President Obama unveiled yesterday a Climate Action Plan (Plan), which includes details about what steps the Administration will take to reduce carbon emissions from power plants.The White House also released a Presidential Memorandum that provides the U.S. Environmental Protection Agency (EPA) with specific deadlines for future rulemakings concerning new and existing power plants but few details on what the eventual requirements for existing facilities will look like.

In the Plan, President Obama aims to reduce carbon emissions nationwide by encouraging the use and development of clean energy, bringing up-to-date the transportation sector, reducing energy waste and cutting emissions of other greenhouse gases, including hydrofluorocarbons. With regard to power plant emissions, the Plan notes that there are currently no federal standards in place to reduce carbon pollution from power plants. Although EPA issued proposed standards for new power plants over a year ago, it received more than two million comments and never issued a final rule. The Plan refers to a Presidential Memorandum (Memorandum), issued yesterday, that directs EPA to develop and finalize carbon emissions limits for both new and existing power plants.

Under the Memorandum’s timeline, a revised proposed rule for new facilities is due September 20, 2013, with a final rulemaking to follow “in a timely fashion.” With respect to existing power plants, the memorandum notably does not require EPA to issue a formal rulemaking setting standards for carbon emissions from such facilities. Instead, President Obama directs EPA to use its power under Sections 111(b) and 111(d) of the Clean Air Act to issue “standards, regulations, or guidelines, as appropriate” concerning carbon emissions from “modified, reconstructed, and existing power plants” (emphasis added). EPA must issue a proposal by June 1, 2014, and the final rule (or guidelines) must be promulgated by June 1, 2015. State implementation plans will be due to EPA by June 30, 2016. Regardless of the substance of the rules for new and existing power plants, the Memorandum’s timeline leaves little room for delay before the end of Obama’s Presidency.

Divided Appeals Court Vacates Air Transport Rule Targeted at Coal-Fired Power Plants

by McDermott Will & Emery | Aug 30, 2012 | Environmental

by Jeffrey D. Watkiss

In EME Homer City Generation, L.P. v. EPA, two judges of a divided three-judge panel of the United States Court of Appeals for the D.C. Circuit vacated the Environmental Protection Agency’s (EPA) 2011 Cross-State Air Pollution Rule (Transport Rule), which implemented the so-called "good-neighbor" provision of § 110 of the four-decade-old Clean Air Act (CAA). Recognizing that upwind emissions pollute downwind regions, the good-neighbor provision requires CAA implementation plans (federal or state) to prohibit upwind sources of air emissions from contributing significantly to a downwind state’s inability to attain or maintain compliance with national ambient air quality standards (NAAQS). Had it not been stayed and later vacated, the Transport Rule would have put 28 upwind states on emission "budgets" for sulfur dioxides (SO2) and nitrogen oxide (NOx) — both NAAQS criteria pollutants — requiring emission reductions primarily from upwind coal-fired electric generating stations.

Coal-burning power companies, coal companies, labor unions, associated trade associations, states and local governments petitioned for review of EPA’s Transport Rule. On December 30, 2011, the court stayed the Transport Rule and instructed EPA, pending a decision on the merits, to continue administering the agency’s predecessor Clean Air Interstate Rule (CAIR). The Transport Rule was EPA’s attempt to develop a rule that cured problems with CAIR, which a different panel of the D.C. Circuit in 2008 found to violate the CAA in North Carolina v. EPA.

The majority’s August 21, 2012 opinion ruled in favor of the petitioners and vacated EPA’s Transport Rule on the ground that the EPA exceeded its CAA authority in two respects. First, the majority held that, under the Transport Rule, upwind states may be required, in violation of the CAA good-neighbor requirement, to reduce emissions by more than their proportional share of significant upwind contributions to a downwind state’s inability to attain or maintain NAAQS compliance. Second, EPA simultaneously set a Federal Implementation Plan (FIP), according to the majority, that ran afoul of the federalism embedded in the CAA, which requires that states be given the first opportunity to devise a compliance strategy in the form of a State Implementation Plan (SIP).

The dissent opinion is excoriating. It accuses the majority of creating and deciding straw-man issues that the majority wanted to decide, but which were not raised before the agency and were therefore not properly before the court. With respect to EPA’s calculation of the emissions reductions that the Transport Rule would impose on upwind states, the dissent accuses the majority of intentionally misreading North Carolina as requiring the agency to use the same metrics to determine which upwind sources are subject to good-neighbor emissions reductions, on the one hand, and the emissions reductions budget for each such state, on the other hand. According to the dissent, North Carolina ruled to the contrary that EPA’s measure of a state’s “significant contribution” to downstream non-attainment or non-maintenance of NAAQS did not have to correlate directly with the state’s air [...]

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Federal Authorities Obtain First-Ever Criminal Conviction Regarding Fraudulent Generation of Renewable Fuel Credits

by McDermott Will & Emery | Jul 5, 2012 | Environmental, Renewables

by Susan M. Cooke and Bethany K. Hatef

On June 25, 2012, a federal jury in Maryland found the owner of a fraudulent clean energy production company guilty of wire fraud, money laundering and violations of the Clean Air Act (CAA). Rodney Hailey, the owner of Clean Green Fuels, LLC, was convicted of eight counts of wire fraud, 32 counts of money laundering and two counts of CAA violations in connection with his sale of fraudulent biodiesel renewable fuel credits. Mr. Hailey’s sentencing is scheduled for October 11, 2012. He faces imprisonment of up to 20 years for each wire fraud conviction; up to 10 years for each money laundering conviction; and up to two years for each CAA violation. While Mr. Hailey’s case marks the first criminal prosecution concerning the fraudulent generation of such renewable fuel credits, the Environmental Protection Agency (EPA) is currently investigating other cases where similar enforcement action may be taken.

As required by the Renewable Fuel Standard Program, EPA each year establishes the minimum volume of renewable fuel (Renewable Volume Obligation) to be produced or imported by refiners, importers, and most blenders of nonrenewable transportation fuel (obligated parties). Under EPA’s regulations which are set forth at 40 C.F.R. Part 80, Subparts K and M, a Renewable Identification Number (RIN) is assigned to each volume of renewable fuel that is produced, and the RIN is registered with EPA. After the associated fuel is obtained by an obligated party or blended into motor vehicle fuel, the RIN can be traded as a renewable fuel credit, either bilaterally or in private organized markets, and all transfers must be tracked on a system established by EPA and used to meet an obligated party’s Renewable Volume Obligation.

From March 2009 to December 2010, Clean Green Fuels, sold more than 32 million fraudulent RINs representing over 23 million gallons of renewable biodiesel fuel. In 2010, EPA received a complaint that Mr. Hailey’s company was selling fraudulent RINs. This sparked an investigation by EPA’s Air Enforcement Division in July 2010, and the U.S. Attorney’s Office for the District of Maryland filed charges against Mr. Hailey in October 2011 with respect to his fraudulent sale of RINs and his registration of Clean Green Fuels with EPA as a biodiesel producer when that company never produced any fuel.

In addition to its criminal prosecution of Mr. Hailey, EPA issued Notices of Violation to gasoline and diesel refiners, blenders, and importers that utilized Clean Green Fuels RINs to demonstrate compliance with their Renewable Fuel Obligations. EPA maintains that entities submitting false RINs for compliance purposes are subject to enforcement, regardless of whether they knew or had reason to know that the RINs were invalid. During April 2012, EPA settled with 28 of those parties, requiring them to replace the fraudulent RINs with valid RINs and to pay civil penalties.

Appeals Court Forcefully Validates EPA’s Emerging Program for Controlling Emissions of Greenhouse Gases

by McDermott Will & Emery | Jul 3, 2012 | Environmental

by Jeffrey D. Watkiss

A unanimous panel of the U.S. Court of Appeals for the D.C. Circuit in Coalition for Responsible Regulation, Inc. v. EPA decisively affirmed against industry and state challenges EPA’s developing programs for regulating emissions of greenhouse gases. Those programs respond to the U.S. Supreme Court ruling in Massachusetts v. EPA, 549 U.S. 497 (2007) that greenhouse gases are an air pollutant subject to regulation under the U.S. Clean Air Act (CAA). As EPA moves ahead to implement the new programs, natural gas-fired and renewable generation will increasingly if not completely, displace new investment in coal-fired generation.

In direct response to the Massachusetts decision, EPA issued an Endangerment Finding for a single air pollutant defined as comprising an aggregate group of six long-lived and directly emitted greenhouse gases that are “well mixed” in the atmosphere and cause global climate change: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydroflourocarbons (HFC), perflourocarbons (PFC), and sulfur hexafluoride (SF6). Affirming EPA,the panel explained that the CAA requires EPA to answer only two questions in connection with endangerment: whether greenhouse gas may reasonably be anticipated to endanger the public health and welfare and whether motor-vehicle emissions cause or contribute to that endangerment. These are scientific determinations, the court explained, that are not informed by “performing cost-benefit analyses, gauging the effectiveness of whatever emission standards EPA would enact, [or] predicting society’s adaptive response to the dangers or harms caused by climate change.”

The panel dismissed as “little more than a semantic trick” the petitioners’ complaint that EPA improperly “delegated” its scientific determinations to the Intergovernmental Panel on Climate Change (IPCC), the U.S. Global Climate Research Program and the National Research Council by relying on the research compiled and synthesized by those research bodies. The panel ruled that EPA “reviewed existing scientific evidence” that included syntheses of individual studies and research,” including 18,000 peer-reviewed scientific studies in the case of the IPCC. The panel rejected the petitioners’ argument that EPA itself was required to perform those studies: “EPA is not required to re-prove the existence of the atom every time it approaches a scientific question.” As to Texas’ complaint that EPA did not identify the atmospheric concentration that endanger public health or welfare, the panel held that such a threshold is not required by the CAA. The opposite is what is required: a case-by-case “sliding scale” that sounds the alarm as danger is approached.

Challenges to the Tailpipe Rule and the panel’s discussion of those challenges were brief, but consequential. The petitioners did not challenge the substance of the Tailpipe Rule, but instead argued that EPA arbitrarily and capriciously ignored the automatic consequence of setting this standard for new motor vehicle emissions of greenhouse gases: Once a standard is set for regulating the emissions of greenhouse gases from new motor vehicles, then EPA becomes obligated to also set a New Source Review performance standard and operating permits for major stationary sources of greenhouse gas emissions. EPA consideration of collateral costs associated with triggering standards for major stationary sources is not permitted, the [...]

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EPA Proposes to Approve Texas State Implementation Plan

by McDermott Will & Emery | Jun 18, 2012 | Environmental

by Ari Peskoe

The U.S. Environmental Protection Agency (EPA) recently proposed to approve revisions to Texas’s air pollution permitting program. These revisions, which requires EPA’s approval pursuant to the Clean Air Act, would bring Texas’s State Implementation Plan (SIP), in compliance with federal standards and additionally establish a Plant-wide Applicability Limits (PALs) program in the state.

Under the federal Clean Air Act, states are authorized to develop their own permitting programs, as long as they meet minimum national standards set by Congress and EPA. The proposed revisions to Texas’s SIP will update its New Source Review (NSR) Program, which requires that entities constructing or modifying major air pollution sources obtain a permit prior to construction. The state’s proposed revisions include an update to the method for evaluation of ozone standards in NSR applications to bring it into compliance with a 2006 D.C. Circuit Court decision, an administrative timing change that may change which air quality standards are applied to a permit, and the establishment of a PALs program.

A PAL establishes a site-wide emissions limit for an existing source. By using a PAL, an owner or operator can make changes that increase an individual units’ pollutant emissions so long as plant-wide actual emissions do not exceed its PAL. PALs provide increased operating flexibility for owners and operators, and create an incentive for owners and operators to employ innovative control technologies and pollution control measures to reduce emissions and enable economic expansion. According to the EPA, the the Texas PALs program will reduce emissions because a PAL is based on actual emissions, which are generally less than the emissions allowed under current permits. EPA concluded that Texas’s new rules were at least as stringent as the applicable federal regulations and should have the same impact as the federal PAL rules.

Existing major stationary sources that meet certain criteria will be eligible for a PAL. PALs are pollutant-specific and issued for ten-year terms. Baseline emissions under a PAL are established using any consecutive 24-month period in the last ten years. Emissions calculations include emissions from startups, shutdowns and malfunctions and are adjusted to account for units that have been permanently shut down and potential emissions from units constructed after the baseline period. To obtain a PAL, a facility owner or operator must submit a permit application to the Texas Commission on Environmental Quality. PAL applications are subject to public notice and comment.

Once EPA’s proposed approval of Texas’s revised SIP is published in the Federal Register, EPA will accept public comments for 30 days.

*Jessica Bayles, a summer associate in the McDermott’s Washington D.C. office, contributed to this article.

EPA Releases Final Fracturing Air Rule

by McDermott Will & Emery | Apr 19, 2012 | Environmental, Hydraulic Fracturing

by James A. Pardo and Brandon H. Barnes

The U.S. Environmental Protection Agency (EPA) released final regulations on April 17 to reduce certain emissions at hydraulically fractured wells by 95 percent. The rule, a product of a February 2010 consent decree with WildEarth Guardians and the San Juan Citizens Alliance, adds New Source Performance Standards (NSPS) and amends existing National Emissions Standards for Hazardous Air Pollutants (NESHAPS) for the oil and gas industry.

NSPS Standards

The NSPS standards will reduce by 95 percent volatile organic compound (VOC) emissions during the completion phase of hydraulically fracturing a well. In addition, although not a regulated substance under NSPS, the new rules have the effect of reducing fugitive methane emissions by 25 percent. These VOC and methane emissions reductions will be attained by requiring that all newly fractured or refractured wells incorporate reduced emissions controls (RECs). In total, EPA estimates that the rule will result in reductions of 11,000 tons of Hazardous Air Pollutants (HAPs), 190,000 tons of VOCs, and 1 million tons of methane, with a net benefit of $15 million as a result of the increased profit from captured methane sales.

The final rule adopts several changes suggested during the public comment period, most important of which is the delayed deadline of January 1, 2015 for requiring the use of RECs. While REC technology currently exists, EPA recognized that the number of REC units required to meet the new regulations far exceeds those actually in existence today. Until then, well operators or owners can achieve specified VOC reductions using flaring or other approved combustion methods.

The final rule also modifies the definition of "well completions," limiting the REC requirement to that period when fracing operations end and flowback begins. The requirement remains in effect until the well is either continuously flowing to the flow line or storage vessel for collection (in which case there should be no fugitive emissions) or shut in, whichever occurs first.

In addition, EPA has exempted low-pressure wells from the REC requirement in response to comments that it is unfeasible to require RECs for low-pressure wells. For low-pressure wells, as well as wildcat (or exploratory) and delineation wells, which are also exempted from the REC requirement, operators can continue to use flaring to achieve specified reductions.

EPA also has rewarded early adopters of REC technology, and encourages others to join early, by redefining actions that constitute "modifications" triggering NSPS requirements. Some states require that any source subject to federal NSPS must get a state minor source air permit. This new definition allows owners and operators of existing wells employing RECs to refracture without changing state permit status, thus avoiding delays and costs associated with the state permitting process.

Finally, but importantly, the rest of EPA’s new rules are not delayed, and take effect 60 days from publication in the Federal Register.

NESHAPS Standards

While EPA adopted many of the comments about the NSPS rules, stakeholders were less successful in obtaining changes to the proposed [...]

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