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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 Publishes its Proposed Regulations for Existing Power Plants – Starting the Public Comment Period

by McDermott Will & Emery | Jun 18, 2014 | Environmental

Today, the U.S. Environmental Protection Agency (EPA) published in the Federal Register its June 2, 2014, proposal to regulate greenhouse gas emissions from existing fossil fuel-fired power plants. The act of publication triggers the start of the 120-day public comment period, meaning that interested parties must submit comments to the agency by no later than October 16, 2014.

On Thursday, June 26, McDermott will be hosting a complimentary webinar on critical issues to address during the comment period. Click here to register.

The Third Piece of EPA’s Clean Power Plan: GHG Emission Limits for Modified and Reconstructed Power Plants

by Jacob Hollinger | Jun 16, 2014 | Uncategorized

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 [...]

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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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EPA’s Next Generation Compliance Initiative – The Agency’s Latest Proposed Rule for Refineries Shows the Initiative in Action and Provides a Glimpse of the Future for Other Industries

by Jacob Hollinger | May 27, 2014 | Environmental

The U.S. Environmental Protection Agency (EPA) recently released a proposed rule that illustrates several of the agency’s Next Generation Compliance ideas in action. The proposed rule concerns hazardous air pollutant (HAP) emissions from refineries, but should be studied by anyone who wants to gain a better understanding of what “Next Generation Compliance” means as a practical matter. Most importantly, the proposed rule shows the direction in which the agency is likely headed with respect to “fugitive” air emissions at other types of facilities – chemical plants, paper mills, distilleries, etc.

EPA uses the term “Next Generation Compliance” to cover several ideas: (i) the use of new, advanced technologies to identify and measure emissions, (ii) electronic reporting of environmental data rather than paper reporting, (iii) greater disclosure of environmental data to the public, and (iv) regulations that contain fewer exceptions and more built-in incentives for compliance.

Many of those ideas are on display in EPA’s May 15 proposed rule for refineries, but two features of that rule stand out as being especially relevant to other industries, and as good examples of what Next Generation Compliance means in practice:

First, the proposed rule would impose emission limits that apply at all times; there are no exceptions for startups, shutdowns and malfunctions. Under this approach, which, because of recent court decisions, will likely be standard for all HAP rules going forward, regulated parties will no longer be automatically shielded from penalties in the event they exceed emission limits because of an equipment malfunction. But those parties may still be able to convince the agency, on a case-by-case basis, that they should not be penalized, based on the event-specific facts.

Second, the proposed rule would require refinery owners and operators to monitor ambient air quality at the fenceline of their facilities, and it encourages the use of new technologies to conduct that monitoring. The agency explains, in the draft rule’s preamble, that this approach is intended to provide a flexible means of locating and controlling fugitive emissions – emissions that cannot easily be captured to pass through a stack or vent and that are usually estimated based on engineering judgments rather than measured directly.

Fenceline monitoring is a controversial topic. Regulated parties sometimes fear that data from fenceline monitoring will be used to impose penalties for emissions that are not in fact unlawful, or that such monitoring will be used to support state law tort claims against the owners and operators of industrial facilities. But in some situations, fenceline monitoring might provide a defense to state law nuisance and trespass claims, or otherwise exonerate a regulated party from blame for local air pollution problems. In all events, a critical question is how the fenceline monitoring data will be used. Does the data establish violations? Does it trigger corrective action duties? Does it trigger reporting duties?

The refinery proposal addresses each of those questions, but with mixed results. Most importantly, there are places where the draft regulatory text and EPA’s explanation [...]

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EPA Unveils Final Cooling Water Intake Structures Rule

by McDermott Will & Emery | May 21, 2014 | Environmental

On May 19, the U.S. Environmental Protection Agency (EPA) finalized its long-awaited rule under Section 316(b) of the Clean Water Act (CWA) imposing requirements for cooling water intake structures (CWIS) at power plants and manufacturing facilities in order to protect aquatic life. The rule, on which EPA received input from the U.S. Fish and Wildlife Service and National Marine Fisheries Service, will become effective 60 days after its publication in the Federal Register.

EPA has stated that the withdrawal of large volumes of water from nearby water bodies by power plants and manufacturing facilities results in the removal of billions of aquatic organisms from these water bodies each year. The main threats CWIS pose to these organisms are impingement (the entrapment of organisms against the outer part of a CWIS) and entrainment (drawing of the organisms into the cooling water system).

The final rule establishes requirements for the location, design, construction and capacity of CWIS at “existing” power generating facilities and manufacturing facilities that withdraw at least two million gallons of water per day from nearby water bodies and use at least 25 percent of that water exclusively for cooling. The rule defines an “existing facility” as a facility “that commenced construction as described in 40 CFR 122.29(b)(4) on or before January 17, 2002 (or July 17, 2006 for an offshore oil and gas extraction facility) and any modification of, or any addition of a unit at such a facility.” Section 122.29(b)(4) states that construction commences when the facility’s owner or operator has (1) begun to place, assemble or install facilities or equipment or has begun to conduct “[s]ite preparation work” (e.g., clearing or excavation activities), or (2) entered into a binding contract (other than option contracts, contracts that may be terminated or modified without substantial loss, and contracts for feasibility engineering or design studies) to purchase facilities or equipment it intends to use for its operations within a reasonable time period. EPA estimates that the rule covers approximately 1,065 facilities – 544 power plants and 521 factories.

The final rule’s requirements will be implemented through National Pollutant Discharge Elimination System (NPDES) permits, and EPA stated that the requirements are based on the best technology available (BTA) for minimizing environmental impacts. The rule establishes a baseline for protecting aquatic life from CWIS, but also allows for state permitting authorities to build in additional facility-specific safeguards. The rule contains three major components:

Covered facilities must reduce impingement of aquatic life through one of seven options for meeting BTA requirements, including operation of a closed-cycle recirculating system, installation of an offshore velocity cap, or potentially using a modified traveling screen;
Facilities withdrawing at least 125 million gallons of water per day must conduct studies to assist permitting authorities, through a process involving public input, in determining any site-specific entrainment mortality controls that may be necessary; and
New units built at an existing facility to increase the facility’s generating capacity must reduce entrainment and impingement by either reducing actual intake [...]

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CSAPR Reinstated, But Some Upwind States May Be Able to Bring As-Applied Challenges

by Jacob Hollinger | Apr 29, 2014 | Environmental

The U.S. Supreme Court today upheld the U.S. Environmental Protection Agency’s Cross State Air Pollution Rule, otherwise known as CSAPR or the “Transport Rule,” reversing a lower court decision that had vacated that rule. The decision means that large sources of nitrogen oxide and sulfur dioxide emissions in upwind states – especially coal-fired power plants – will be subject to more stringent air pollution control requirements going forward.

Today’s decision is an important victory for EPA and for the downwind states and other entities that supported the Transport Rule. Indeed, the decision not only reinstates the Transport Rule, but also holds that EPA did not act prematurely in issuing federal implementation plans (FIPs) for that rule.

But the decision does leave room for some state-specific implementation-related challenges on remand. Most notably, the Supreme Court held that EPA lacks authority to require certain types of “over-control,” meaning that EPA cannot require an upwind state to reduce its emissions beyond (i) the amount needed to achieve attainment with applicable air quality standards in every downwind state to which it is linked or (ii) the point at which the upwind state is no longer contributing more than one percent of the air pollution problem in every downwind state to which it is linked. Thus, to the extent that the Transport Rule, or an individual FIP, requires such “over-control,” the affected upwind state should be able to challenge that aspect of the rule, or the FIP, on remand. In the Supreme Court’s words: “If any upwind State concludes it has been forced to regulate emissions below the one-percent threshold or beyond the point necessary to bring all downwind States into attainment, that State may bring a particularized, as applied challenge to the Transport Rule, along with any other as-applied challenges it may have.”

Nevertheless, the overall takeaway from today’s decision is that the lower court was wrong to vacate the Transport Rule and that EPA is entitled to considerable deference in how it implements the Clean Air Act’s “good neighbor” provision. The Supreme Court endorsed EPA’s overall approach to reducing interstate air pollution, even if it left open the possibility that some individual states may be able to challenge the state-specific application of that approach.

The President’s Methane Reduction Strategy – Here’s What Energy Companies Need to Know

by McDermott Will & Emery and Jacob Hollinger | Apr 17, 2014 | Environmental, Natural Gas

President Obama recently released a Strategy to Reduce Methane Emissions (Strategy) that sets forth a multi-pronged plan for reducing methane emissions both domestically and globally. Domestically, the plan is to focus on four sources of methane—the oil and gas sector, coal mines, agriculture and landfills—and to pursue a mix of regulatory actions with respect to those sources. Energy companies now have the opportunity to help influence exactly what those actions will be.

For the oil and gas sector, the Strategy indicates that the federal government will focus primarily on encouraging voluntary efforts to reduce methane emissions—such as bolstering the existing Natural Gas STAR Program and promoting new technologies. But the Strategy also identifies two areas of potential mandatory requirements. First, later this year, the Bureau of Land Management (BLM) will issue a draft rule on minimizing venting and flaring on public lands. Regulated parties will have the opportunity to submit comments after the proposed rule is released. Second, the Strategy confirms that the Environmental Protection Agency (EPA) will decide this fall whether to propose any mandatory methane control requirements on oil and gas production companies. Consistent with that announcement, on April 15, 2014, EPA released five technical whitepapers discussing methane emissions from the oil and gas production process. The agency is soliciting comments on those whitepapers—they are due by June 16, 2014.

For coal mines, the Strategy indicates that BLM will soon be seeking public input on developing a program to capture and sell methane from coal mines on public lands. The Strategy further indicates that EPA will continue promoting voluntary methane capture efforts.

For landfills, the Strategy calls for public input on whether EPA should update its regulations for existing solid waste landfills, indicates that EPA will be proposing new regulations for future landfills, and indicates that EPA will continue to support the development of voluntary landfill gas-to-energy projects.

For agriculture, the Strategy does not suggest any new regulatory requirements. Instead, it indicates that EPA and the Department of Energy will work to promote voluntary methane control efforts and that those agencies will place special emphasis on promoting biogas—starting with the release of a “Biogas Roadmap” in June 2014.

In addition to these sector-specific approaches, the Strategy emphasizes the need for improved methane measurement and modeling techniques, both domestically and globally. All of the topics covered by the Strategy are ones about which regulated parties may want to submit comments—to EPA, BLM and/or the Office of Management and Budget.

Deadline Extended to Submit Comments on EPA’s Proposed Greenhouse Gas Emission Limits for New Power Plants

by Jacob Hollinger | Feb 27, 2014 | Environmental

The U.S. Environmental Protection Agency (EPA) has announced that it is extending until May 9, 2014, the deadline for submitting comments on its proposed rule to set greenhouse gas emission limits for new coal- and gas-fired power plants. The announcement came in a Federal Register notice signed by EPA on February 26 and slated for publication in the next several days.

EPA’s proposed rule, which was released publicly in September 2013 but not published in the Federal Register until January 8, 2014, would require “new” electric utility generating units (meaning units built after January 8, 2014) to comply with the following emission limits: (1) new coal-fired units would be limited to 1,100 pounds of carbon dioxide (CO2) per megawatt-hour of electricity generated (1000 lbs/MwH); and (2) new gas-fired units would be limited to either 1000 lbs/MwH or 1100 lbs/MwH, depending on their size.

EPA’s proposed limit for coal-fired units is based on the agency’s determination that the limit can be achieved through a combination of highly-efficient boiler design (either super-critical pulverized coal or integrated gasification combined cycle technology) and partial implementation of carbon capture and storage (CCS) technologies. But the CCS aspect of EPA’s proposal has encountered heavy criticism. Some commentators have argued that (1) CCS is not commercially viable and, therefore, should not be considered as a basis for setting emission limits, and (2) in concluding that CCS is a viable pollution control technology, EPA impermissibly relied on evidence that the Energy Policy Act of 2005 (EPACT 2005) expressly forbids it from considering.

EPA discusses the EPACT 2005 issue at some length in a Notice of Data Availability (NODA) published in the Federal Register on February 26. And although that NODA calls for comments by March 10, EPA’s new announcement – the one signed on February 26 and slated for publication in the next several days – indicates that EPA will accept comments on the NODA through May 9. Thus, May 9 is the deadline for submitting comments on both the NODA and the overall proposed rule.

Separately, EPA remains on track to publish proposed emissions guidelines for existing power plants by June 2014. Interested parties will have an opportunity to comment on that proposal once it has been published. Finally, parties that are affected by, or interested in, EPA’s air-related activities may want to read McDermott’s recent publication “What’s in the Air this Year?”

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.

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