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Indiana Court of Appeals Finds IDEM Must Seek SIP Approval Before Reclassifying Fuel-Grade Ethanol Plants


By Jennifer Kahney Thompson, Attorney, Bingham Greenebaum Doll LLP

On April 30, 2013 the Indiana Court of Appeals found that the Indiana Department of Environmental Management (IDEM) could not exclude fuel-grade ethanol production plants from the Prevention of Significant Deterioration (PSD) “chemical process plants” industrial source category without the Environmental Protection Agency (EPA) approval of a modification to Indiana’s State Implementation Plan (SIP).  The Court based its opinion on the fact that the term “chemical process plants” had been included in Indiana’s rules since 1980 and that IDEM and EPA prior to 2007 had consistently permitted fuel ethanol plants as “chemical process plants.”  Additionally, Indiana’s SIP was submitted and approved by EPA during this period.  Pursuant to the PSD regulations, “chemical process plants” are one of the 28 listed industrial categories subject to a 100 tons per year threshold emissions limit for PSD permitting.  Facilities not falling under one of the 28 listed industrial categories are subject to a 250 tons per year limit threshold.

In both permitting actions IDEM made a determination that the facilities were not “chemical processing plants” and thus did not limit the facilities to under the 100 tons per year PSD threshold.  This interpretation was a change from IDEM and EPA’s prior permitting determinations.  IDEM acted in response to EPA’s 2007 rule change which expressly excluded these types of facilities form the definition of “chemical process plants.”  The defendants Federally Enforceable State Operating Permits were both appealed by the Natural Resources Defense Council, and were consolidated at the Indiana Office of Environmental Adjudication (OEA).  OEA ruled in favor of the environmentalists and the facilities along with a similarly situated facility sought judicial review of the OEA’s decision in the Marion County Superior Court which reversed OEA and found in their favor.

The Court of Appeals was tasked with deciding whether the IDEM could properly exclude the two facilities from the “chemical process plants” category without EPA approval of a modification to the Indiana SIP.  The Court held “[b]ecause IDEM had, in its prior permitting decisions, given the term ‘chemical process plants’ a ‘definitive interpretation, and later significantly revise[d] that interpretation’ it was obliged to seek EPA approval for an amended SIP.”  The Court went on to say that even if the Court could ignore the failure to amend the SIP, “IDEM’s past consistent treatment of the fuel ethanol plants as chemical process plants would dictate the result we reach.”

Following the OEA decision, 326 IAC 2-2, 326 IAC 2-3, and 326 IAC 2-7 were amended to exclude ethanol production facilities that produce ethanol by natural fermentation from the definition “chemical process plants.”  However, these new definitions are not yet SIP approved.

The Court’s decision raises many questions and fails to discuss the Clean Air Act’s procedures and timeframes involved in submitting and reviewing a modification to the SIP.  At the time of publication of this newsletter, the parties were considering whether to appeal the decision to the Indiana Supreme Court.

To view a complete PDF of the March/April 2013 issue of the Environmental Letter, click HERE.


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