Happy New Year! Are you Ready for Greenhouse Gas Regulation?
Environmental Law Alert 01/01/10 Roger K. Ferland, Michael S. McCauley, Cynthia A. Faur
It is a new year, and for U.S. Environmental Protection Agency ("EPA"), it is a time for new regulation - specifically the regulation of greenhouse gases ("GHGs"). Beginning on January 1, sources covered by U.S. EPA's final October 30, 2009 GHG emissions reporting rule were required to begin tracking emissions of six GHGs. U.S. EPA is also poised to issue its final rule setting light duty vehicle GHG emission standards in March 2010, and once this rule becomes "final and effective," it is U.S. EPA's position that new source review permitting requirements will apply to major new and modified GHG emission sources. As the new year dawns, one must ask a question: am I ready for GHG regulation?
Mandatory GHG Reporting
Beginning on January 1, sources subject to the GHG emissions reporting rule were required to begin tracking emissions of six GHGs. Although the rule only creates monitoring, reporting, and recordkeeping obligations and does not impose emission limits, it does create the first mechanism for enforcement by EPA relating to GHG emissions. Failure to file reports, monitor, or otherwise comply with the rule could trigger penalties under the Clean Air Act - up to $32,500 per violation per day. For facilities with emissions close to the reporting threshold, the risks of underreporting and potential enforcement may be a significant factor in determining whether to monitor or not.
As described in our October 2009 Environmental Alert, the rule applies to certain specified sources of GHG emissions, as well as any source with emissions from the combustion of fossil fuels of greater than 25,000 TPY of CO2 equivalent. Emissions of GHGs other than CO2 are standardized as CO2 equivalents ("CO2e"), by applying a conversion factor (for example, 1 ton of methane is treated as 21 tons CO2e under the rule).
The reporting rule employs several different methods to identify parties that must report GHG emissions. The primary methods consider the source's industry and also its emission levels of CO2e. First, the rule contains a list of industry categories; sources in these categories must report emissions annually regardless of the amount of emissions. In addition, the rule contains another list of industry categories whose sources are required to report only if the source emits more than 25,000 metric tons of CO2e. Finally, all facilities with stationary fuel combustion units, like boilers and process heaters, that emit at least 25,000 metric tons of CO2e that are not otherwise included in either of the first two groups must file reports.
Facilities with relatively small fuel combustion sources may be required to report under this rule because applicability is based on aggregation of the maximum rated heat input from all stationary combustion sources at a facility and actual emissions. For facilities burning natural gas, fuel combustion sources with a maximum rated heat input capacity of 50mmBTU/hr could be subject to reporting depending on fuel usage and emissions. The heat input capacity is lower for units burning coal or fuel oil, 30 mmBTU/hr and 35 mmBTU/hr, respectively. To assist in applicability determinations, EPA has developed an applicability tool and a variety of fact sheets to assist sources subject to the reporting rule. These materials can be found here.
For facilities that report, in part, based on emissions, the decision to monitor or not may be difficult if your actual emissions are close to the reporting threshold. Whether reporting is required or not may not be known until December 31, 2010 for such facilities, and given economic conditions, it may not be possible to predict annual emissions at this point. Accordingly, a facility may elect to monitor emissions in the event reporting is required. Once a facility becomes subject to the rule, the facility must submit a report for every year thereafter unless (or until) the requirements to cease reporting are met.
Potential Permitting Requirements for Major New and Modified GHG Emission Sources
On December 7, 2009, U.S. EPA issued its final Endangerment Finding for GHG emissions from new motor vehicles. Issuance of this finding paves the way for U.S. EPA to issue its final rules regulating GHG emissions from light duty vehicles. Under U.S. EPA's proposed interpretation of the Clean Air Act, issuance of "final and effective" GHG rules applicable to new motor vehicles will trigger GHG permitting requirements for major GHG emission sources under the federal Prevention of Significant Deterioration ("PSD") and Title V permit programs.
Promulgation of the final motor vehicle rules is expected in March 2010, and these rules may be considered "final and effective" 60 days after publication. Accordingly, sources considered "major" for GHGs may be required to obtain Title V operating permits for GHGs, and in the event new major GHG emission sources are constructed or existing sources are modified, sources may need to install Best Available Control Technology ("BACT") for GHG emissions.
Under the Clean Air Act, PSD requirements apply to "major sources" of pollutants, which are defined by statute as sources that emit either 100 or 250 tons per year of a regulated pollutant. The applicability threshold for Title V requirements is generally 100 tons per year of a regulated pollutant. Application of these statutory thresholds to GHG emissions, which are emitted in much greater amounts from combustion sources than currently regulated pollutants, would subject millions of additional sources such as schools, churches, and small office buildings to major source permitting requirements, very likely overwhelming permitting authorities.
To address this issue, on October 27, 2009, U.S. EPA proposed to "tailor" the PSD and Title V programs for GHG emission sources. The proposed "tailoring" rule would temporarily increase, for a period of at least six years, the applicability thresholds of the Title V and PSD programs for GHGs to a potential to emit 25,000 tons per year CO2e. U.S. EPA also proposed to increase the "significance" threshold for modifications of existing sources to a number between 10,000 and 25,000 tons per year CO2e. Absent the tailoring rule, the significance threshold for modifications impacting GHG emissions would be zero. As a result, any increase in GHG emissions attributable to modification of a major GHG emission source would require the installation of BACT.
U.S. EPA based its ability to issue the "tailoring rule" on two legal theories: absurd results and administrative necessity. The "absurd results" theory is used when the literal interpretation of the law would thwart the intent of the legislation, and "administrative necessity" is used when it would be impossible for the Agency to implement statutory provisions as written. Use of these legal theories to support revision of statutory requirements is rare, and U.S. EPA has reportedly questioned whether the tailoring rule can withstand legal challenge.
U.S. EPA is anticipated to issue the tailoring rule around the same time that it issues the final light duty vehicle GHG rule, so that tailoring requirements will be in place when PSD and Title V first apply to large stationary sources. Even with the tailoring rule, however, PSD and Title V requirements for GHG may apply to some sources traditionally considered to be small. Sources subject to the Mandatory GHG Reporting Rule would also would be subject to Title V and PSD requirements, as would sources that have the potential to emit 25,000 tons of CO2e per year even if actual emissions are much less than the permitting thresholds.
2010 will likely mark the first year that U.S. EPA regulates GHG emissions under the Clean Air Act. GHG-emitting facilities and fossil fuel suppliers subject to the Mandatory GHG Reporting Rule should be ensuring that they are ready to comply with the monitoring and recordkeeping requirements of that rule. These sources and other others with a significant potential to emit GHGs should be reviewing their operations and planned maintenance activities and facility improvements to prepare for the potential application of PSD and Title V requirements to stationary sources. To the extent that PSD and Title V become applicable to stationary sources in 2010, delays in permit issuance - even for permitting not related to GHG emissions - is anticipated.
If you have questions or need additional information, contact Katea Ravega or Roger Ferland in Arizona at 602-229-5200 / [email protected]quarles.com or [email protected]. In Wisconsin, contact Mike McCauley at 414-277-5525 / [email protected] or Pete Tomasi at 414-277-5677 / [email protected] In Chicago, contact Cindy Faur at 312-715-5228 / [email protected].