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Environmental Appeals Board Punts on NSR Regulation of Carbon Dioxide

12.01.2008

By Larry Kane, Attorney, Bingham Greenebaum Doll LLP

A long-awaited decision of the U.S. Environmental Appeals Board (EAB) on the question of whether the Clean Air Act’s PSD program applies to carbon dioxide (CO2) disappointingly fails to definitively address the central issue. On November 13, 2008, the EAB issued its nonfinal decision in the case of In re: Deseret Power Electric Cooperative (PSD Appeal No. 07-03) remanding the PSD permit issued by USEPA’s Region 8 for further consideration by the agency of an appropriate interpretation of the Clean Air Act’s provisions governing the scope of the PSD program. The permit in controversy had been issued for construction of a new coal-fired electric generating unit located within Native American tribal lands in Utah. The Sierra Club challenged the permit’s validity based on the lack of Best Available Control Technology (BACT) limits for CO2.

The decision provides a very unsatisfactory interim ruling on whether the CAA requires BACT limits to be set for carbon dioxide emissions and effectively defers an ultimate decision by EPA on this issue to the Obama Administration. Some have cynically suggested that this result was a guiding objective for the decision.

However, the EAB definitively made certain preliminary legal conclusions. For example, the EAB held that Massachusetts v. EPA did not conclude that CO2 is subject to regulation under the Clean Air Act, contrary to contentions of the Sierra Club. (slip op. at 8) Also, the EAB held that the statutory phrase of Section 165 of the CAA (42 U.S.C. §7475) governing the scope of PSD applicability – whether a pollutant is “subject to regulation” under the CAA – is ambiguous and subject to interpretation by EPA, again contrary to Sierra Club’s contentions. (slip op. at 26)

In reaching the preceding conclusion, the EAB concluded that the requirement of Section 821 of the 1990 CAA Amendments that EPA adopt “regulations” to require the monitoring and reporting of CO2 emissions does not compel a conclusion that “subject to regulation” includes any regulation, such as monitoring and reporting requirements. (slip op., at 31) In other words, Congress may have intended different meanings for “regulation” as used in Section 165 of the CAA concerning the PSD program and for “regulations” as employed in Section 821 of the 1990 Amendments.

However, in turning to consider the EPA Region’s rationale for concluding that the CAA did not provide authority to require BACT limits for CO2, the EAB’s reasoning loses its clarity.

In issuing the PSD permit to Deseret Power, EPA’s Region 8 had declined to include BACT limits for CO2 on the grounds that the agency was constrained from further interpretation of PSD applicability to CO2 by a historical agency interpretation that “subject to regulation”, for purposes of PSD applicability, means that a pollutant must be subject to a regulatory requirement imposing actual controls on the pollutant’s emissions. The EAB criticized Region 8 for failing to “identify in its response to comments any [EPA] document expressly stating that ‘subject to regulation under the Act’ means ‘subject to a statutory or regulatory provision that requires actual control of emissions of that pollutant’ . . . Instead, the response to comments derives by inference what the Region views as the [EPA’s] historical interpretation.”

As a result, the EAB opined that it cannot conclude from the record for the Deseret permit that the historical EPA statements identified in the Region’s response to comments are “sufficiently clear and consistent articulations of an Agency interpretation to constrain the authority the Region acknowledges it would otherwise have under the terms of the statute. Thus, we must find that the Region committed clear error.” [Emphasis added.]

It seems that the EAB’s conclusion of “clear error” is pinned on a hypertechnical assessment of the manner in which Region 8 expressed its understanding of EPA’s historical interpretative position on the meaning of “subject to regulation.” In essence, the EAB seems to be prescribing an unreasonably high standard for an acceptable articulation by the Region of the rationale for its permit decision.

Consequently, the EAB remanded the Deseret Power permit to EPA “to reconsider whether or not to impose a CO2 BACT limit in light of the Agency’s discretion to interpret, consistent with the CAA, what constitutes a “pollutant subject to regulation under this Act.” In doing so, the EAB was careful to point out that it had not ruled that the CAA requires the PSD program to impose BACT limits on CO2. Instead, that interpretative decision was reserved for EPA.

Commenting on the EPA’s task under the remand, the EAB noted the obvious national import of the agency’s interpretation on this issue and strongly urged EPA to consider addressing the interpretative issue in an action of nationwide scope (implying a rulemaking).

Ramifications of the Deseret decision are grave: in leaving open the ultimate question whether the PSD program applies to CO2, the decision creates regulatory uncertainty not only for the electric utility industry but for virtually all other industrial sectors which combust even modest amounts of fossil fuels. Applications for PSD permits for construction or modification of such sources involving an increase in CO2 emissions are likely to be stalled and issued permits are almost certain to become embroiled in permit appeals.

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