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House Bill Would Circumvent Federal Regulation of Coal Ash

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

On Thursday, the U.S. House of Representatives passed legislation that would significantly alter the U.S. Environmental Protection Agency’s (EPA) authority with respect to the regulation of coal combustion residuals (CCR) or coal ash under the Resource Conservation and Recovery Act (RCRA). If enacted, this legislation would allow states to develop, implement and administer permit programs for handling CCR. EPA would have permitting authority only in limited circumstances. Furthermore, the legislation provides that, except as provided in those subsections that authorize EPA to review state permit programs for consistency with the law and those providing for EPA implementation of the permit program, “[EPA] shall, with respect to the regulation of coal combustion residuals, defer to the States pursuant to this section.” (The bill’s further reference to RCRA § 6005 as an exception appears to be a mistake.)

Aside from creating an entirely new permitting regime for CCR, this legislation would add a new layer of uncertainty to the validity of EPA’s pending rulemaking on the regulation of CCR under RCRA. The effect on EPA’s proposed Effluent Limitations Guidelines and Standards for the Steam Electric Power Generating Point Source Category (proposed June 7, 2013; comments due September 20) pursuant to the Clean Water Act, which would impose new requirements on wastewater associated with fly and bottom ash and also may address ash pond closure issues, is uncertain.

The House bill, entitled the Coal Residuals Reuse and Management Act of 2013, was passed by a 265-155 vote, including the support of 39 Democrats, and would be an amendment to the Solid Waste Disposal Act. The legislation authorizes states to create and manage permit programs for CCR. The proposed law would require states to notify the EPA Administrator within six months of the legislation’s enactment whether they plan to implement such a permit program. States that choose to create such a program would need to comply with certain federal standards and requirements, including those addressing design, groundwater monitoring and corrective action, closure and post-closure of landfills, surface impoundments or other land based units that receive CCR.

Although House Democrats have argued that the legislation does not provide for enough federal authority to regulate CCR, citing groundwater pollution as a primary concern, Republicans and industry groups have supported the bill as protecting the market for beneficial uses of CCR. (For example, the legislation would not affect utilization, placement and storage of CCR at surface mining and reclamation operations.) The Obama administration indicated in a statement earlier this week that it is interested in working with Congress to address the issues raised in the legislation to develop standards for the management of CCR and to encourage the beneficial uses of coal combustion byproducts, suggesting that a legislative compromise may be attainable.

The legislation, and its potential for enactment, further complicates the already uncertain status of federal regulation of CCR – specifically, EPA’s long-pending rulemaking concerning the handling of CCR under RCRA. In June 2010, EPA issued a proposed rule to [...]

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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 Permitting Guidance for Fracing with Diesel Fuel

by McDermott Will & Emery | May 22, 2012 | Environmental, Hydraulic Fracturing

by James A. Pardo and Brandon H. Barnes

Hydraulic fracturing (fracing) on private land has long been overseen by state regulators enforcing state-specific permitting, installation and other requirements. The one exception is wells fractured with diesel fuel, which remain subject to U.S. Environmental Protection Agency (EPA) oversight under the Underground Injection Control (UIC) rules of the federal Safe Drinking Water Act (SDWA). EPA typically has delegated its UIC oversight responsibility to state regulators and, for more than a year, has quietly been providing direction to these state regulators about what EPA wants to see as a condition to issuing drilling permits for wells that will be fractured with diesel. That direction now has been reduced to a formal guidance document, which the agency issued for public review and comment on May 10, 2012. While EPA’s proposed guidance has attracted little media attention (principally because it was issued on the same day that the Department of Interior proposed long-awaited regulations for fracing on federal lands), EPA’s latest initiative to regulate fracing is something that all stakeholders – whether they use diesel or not – need to be following closely for several reasons:

1. EPA has proposed defining "diesel" by reference to six Chemical Abstracts Service Registry Numbers (68334-3-5; 68476-34-6; 68476-30-2; 68476-31-3; 8008-20-6; 68410-00-4), all of which essentially describe different types of diesel fuel, fuel oil or kerosene. However, the EPA has also proposed as an alternative three broader definitions that focus on the chemical and physical characteristics of "diesel" and which, if adopted, could apply to substances like mineral oil. These alternative definitions of "diesel" could bring many more fracing fluids, and many more fracing stakeholders, under UIC and EPA regulatory control.

2. EPA has proposed significant changes to existing federal permitting requirements relating to (a) permit duration and well closure; (b) Area of Review analyses; (c) well monitoring and integrity analyses; (d) water quality testing and monitoring, including baseline groundwater testing before drilling; and (e) other data and information requirements for obtaining a permit including, potentially, requiring applicants to conduct expensive seismic surveys. While much of this information is already required by state regulatory authorities, it is clear that the permitting scheme being contemplated by EPA would be more costly, time-consuming and burdensome than the rules imposed by most states.

3. Finally, in a notable departure from its own prior pronouncements, at page 16 of its guidance, EPA suggests that fracing can open conduits in the subsurface that might allow fracing fluid to migrate upward into shallow drinking water supplies: "Due to high injection pressures, there is potential to induce fractures that may serve as conduits for fluid migration …" EPA’s statement is troubling because it suggests that the agency is stepping back from decades of research (including studies by USGS and EPA itself) which demonstrates that deep fracing poses no threat to shallow groundwater located above thousands of feet of bedrock and other sub-strata. EPA’s retreat on this important point potentially opens up a new line of attack [...]

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Recent Developments in Federal and State Efforts to Regulate Hydraulic Fracturing

by McDermott Will & Emery | Apr 30, 2012 | Environmental, Hydraulic Fracturing

by James A. Pardo and Brandon H. Barnes

Obama Signs Executive Order Creating Hydraulic Fracturing Task Force

President Obama’s position that hydraulic fracturing must be conducted in a "safe and responsible" manner has been interpreted as suggesting the need for increased federal regulation of fracing. Indeed, various federal agencies have stepped forward with proposed regulations targeting air emissions, chemical disclosures, wastewater handling and other fracing-related issues. Many natural gas stakeholders have expressed concern about this building wave of federal regulation, from different agencies and regulators, and the potential that this will result in inefficient, burdensome and even conflicting federal-versus-federal and federal-versus-state regulatory requirements.

Perhaps in response to these concerns, on April 13, President Obama signed an executive order creating a task force of 13 federal agencies to "coordinate the efforts of Federal agencies responsible for overseeing the safe and responsible development of unconventional domestic natural gas resources and associated infrastructure and to help reduce our dependence on oil …." While some in the oil and gas industry have applauded the creation of this task force for its potential to streamline and coordinate federal activity on fracing, stakeholders will keep a close eye on the path taken by the Obama Administration. Since 2005, the bulk of hydraulic fracturing oversight has come from state regulatory authorities – who typically are better positioned to deal with the unique regional and local issues often presented by oil and gas development.

Requiring coordination among 13 different federal agencies may be a positive development. However, the precedent of federal regulation – and the possibility that coordination may lead to calls for more regulation in the future – may be one that stakeholders will be less than enthusiastic about, particularly after the Environmental Protection Agency wraps up its multi-year study of fracing’s impacts on groundwater in 2014.

Colorado Governor’s Task Force Releases Draft Report

A task force established by Colorado Governor John Hickenlooper recently released a draft report on strategies regarding state and local development and regulation of oil and gas activities. The task force determined that "drawing bright lines between state and local jurisdictional authority was not realistic or productive," thus refusing to find that local authority is completely preempted by the Colorado Oil & Gas Act. The group also concluded that no new laws are necessary at this time, but that consideration of Colorado’s oil and gas rules related to setbacks and air quality are topics for further discussion.

The task force is comprised of representatives from counties, municipalities, the state, industry, civic organizations and the general public. The Governor’s task force was established only a few days after two New York trial courts rejected separate legal challenges to local zoning amendments that banned hydraulic fracturing – handing victories to those who advocate for "local" (not state) control over whether fracing is allowed. Fracing supporters in Colorado had hoped that the task force report would conclude (or recommend) that state regulation preempted local ordinances like those in New York. Fracing opponents had hoped for [...]

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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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Pennsylvania: EPA Again Concludes that Dimock Well Water Is Safe to Drink

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

by James A. Pardo and Brandon H. Barnes

At the request of residents in Dimock, PA, for the past several months EPA has been testing drinking water wells for contamination that the residents attribute to nearby fracing activities by Cabot Oil. Earlier this month EPA concluded that the water in several of these wells was safe to drink. Last Monday, EPA reported that the water in several other wells also was safe to drink.

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