News & Resources

Publications & Media

EPA Issues “Tailoring Rule” for Permitting Greenhouse Gas Emissions

Environmental Law Alert Cynthia A. Faur

On May 13, 2010, the U.S. Environmental Protection Agency ("EPA") issued its final greenhouse gas ("GHG") permitting rule, commonly referred to as the "Tailoring Rule." The "Tailoring Rule" incorporates GHG emissions into the existing Title V and Prevention of Significant Deterioration ("PSD") permitting regime. In order to allow permitting agencies to not be overwhelmed by the flood of new permits for GHG emissions sources, EPA decided to raise (or "tailor") the statutory emission thresholds to levels that the agency deems more appropriate for GHGs. If and when those thresholds revert to the thresholds established by statute, many facilities that to date have not obtained federally enforceable permits will be forced to do so. The final rule differs significantly from the rule that was proposed in the fall of 2009.

Pollutants Regulated

The Tailoring Rule regulates the same pollutants that are subject to reporting under the GHG Mandatory Reporting Rule. These pollutants are: carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride. These pollutants are regulated collectively as GHGs on a carbon dioxide equivalent ("CO2e") basis. CO2e is the term primarily used in the rule and is the international standard reference for this group of gases. The carbon dioxide equivalent is determined by using a multiplier to scale the emissions of another GHG to those of CO2. For example, the global warming potential of methane is 21. That mean that every ton of methane emitted is the equivalent of 21 tons of CO2e.

Permitting Threshold

The rule does not propose changes to the Title V or PSD permitting programs in terms of overarching regulatory structure. Instead, the tailoring rule focuses on the level of emissions that are "subject to regulation" under the rule. For the Clean Air Act Title V and PSD programs, a "major stationary source" is a source that emits greater than 250 tons per year ("tpy") of a regulated air pollutant (or 100 tons per year for some industries). Because 250 tpy of GHGs is such a low amount, using that threshold would require millions of very small sources to obtain significant Clean Air Act permits, which EPA views as an absurd result. To avoid such a situation, the Tailoring Rule narrows PSD applicability to include only those sources that meet both the existing mass based applicability limits discussed above and have the potential to emit ("PTE") 100,000 tons CO2e for new major sources or 75,000 tons CO2e for modified existing sources.

Although the proposed rule had recommended revision of the major stationary source definition to include a threshold of 25,000 tpy of CO2e, the final rule codifies a different approach. This rule maintains the mass based thresholds contained in the major stationary source definition, but adds a definition of the term "subject to regulation", which further limits PSD and Title V applicability. The final Tailoring Rule establishes, in addition to the 100/250 ton mass-based threshold, the following thresholds:

  • PSD:
    • 75,000 tpy of CO2e potential to emit applicable to any modifications at an existing major source of GHGs or conventional pollutants.
    • 100,000 tpy CO2e potential to emit for new major sources of GHG emissions.
  • Title V:
    • No threshold for existing Title V sources.
    • 100,000 tpy CO2e for a source, which is only major for GHGs.

EPA adjusted the threshold upwards from 25,000 tpy CO2e in light of comments from state regulatory agencies,
who indicated that they lacked capacity to process and administer the number of additional permits anticipated under a 25,000 tpy scenario. EPA also revised the manner in which it codified the CO2e thresholds in the rule to address state regulatory concerns that if revised thresholds were included in major source definitions for PSD and Title V, states would need to revise those definitions in their state laws and regulations in order to apply the revised permitting thresholds. Through the inclusion of a new defined term, "subject to regulation," EPA anticipates that many states will able to interpret its existing state laws and regulations in accordance with the new definition upon the applicability date for the rule.

Separate Timelines For Implementation

EPA establishes two separate regulatory timelines for implementing GHG emissions into the existing Clean Air Act permitting structure. First, existing major sources under the Title V program and sources seeking PSD permits for conventional pollutants (referred to as "anyway" sources) will have to address GHG emissions in permits issued after January 2, 2011. For Title V sources, GHG emissions will need to be addressed, regardless of amount, in their Title V permits generally upon revision or renewal. For sources with pending PSD applications, a potential increase in GHG emissions equal to or in excess of 75,000 tpy CO2e is subject to permitting.

Second, sources that are not required to have a permit anyway but that have the potential to emit 100 tons of GHGs on
a mass-basis and 100,000 tpy CO2e must obtain a synthetic minor permit or apply for a Title V permit by July 1, 2012. PSD permitting will also begin to apply to new GHG emissions sources with potential to emit GHGs at levels above the applicable mass-based limit (100/250 tpy) and of 100,000 tpy CO2e, and to modifications of existing sources that increase GHGs by 75,000 tpy CO2e.

Sources that obtain PSD permits in advance of these deadlines will not be required to reopen the permits to incorporate the new requirements to the extent that they commence construction in a timely fashion. After July 1, 2011, however, sources will not be able to commence construction of a major modification without issuance of a PSD permit for GHG emissions, even if prior to that date, the project would not have required a PSD permit.

GHG "Best Available Control Technology"

One of the primary concerns with the application of this rule to pending PSD applications is what will be considered best available control technology ("BACT") for GHGs. The Tailoring Rule does not specifically address what will be considered BACT for GHGs, but EPA is developing BACT policy guidance, which will be subject to public notice and comment, and will be working with the states and tribes on BACT training. Additionally, in 2009, EPA tasked the Clean Air Act Advisory Committee ("CAAAC") to provide it with assistance and recommendations on the application of BACT to GHG sources. The CAAAC continues to study this issue and released its first report on February 3, 2010. That report is available in the rulemaking docket and here.

Exemptions

The final rule does not contain any industry-specific exemptions. Even so-called renewable energy sources, like biomass and biogas combustors, will have to obtain permits if their GHG emissions reach or exceed the permitting thresholds.

Smaller sources, however, are excluded from regulation until at least 2016 regardless of industry type. EPA included in the rule an exemption for all sources that emit 50,000 tpy CO2e or less. Source modifications that increase CO2e emissions by 50,000 tpy or less are also excluded. These exemptions are in place until at least 2016.

Future Rulemakings

EPA committed to several future rulemakings. A third phase to extend GHG permitting to additional sources is planned before July 1, 2012, with implementation by July 1, 2013. A study of the progress in implementing PSD and Title V permitting for GHG sources will be undertaken, with a planned completion date of 2015. Finally, EPA plans to conduct an additional extension phase to address smaller sources by April 30, 2016. EPA also stated that if the agency determines such extensions of the GHG permitting would have absurd results then the agency may decide that, to avoid such absurd results, PSD or Title V does not apply to the remaining sources. If that occurs, then EPA will close this implementation process and will not extend it.

To discuss how these rule might impact your business or for additional information, contact Katea Ravega or
Roger Ferland in Phoenix at 602-229-5200 / katea.ravega@quarles.com or roger.ferland@quarles.com. In Milwaukee or Madison, contact Mike McCauley at 414-277-5525 / michael.mccauley@quarles.com. In Chicago, contact Cindy Faur at 312-715-5228 / cynthia.faur@quarles.com.