Locke Lord QuickStudy: EPA Stakes Out Approach to Address GHG Permitting for Authorized Sources Affected

On December 19, 2014 the Environmental Protection Agency (EPA) issued two memoranda outlining the Agency’s planned response to the Supreme Court’s June 2014 decision in Utility Air Regulatory Group (UARG) v. Environmental Protection Agency (124 S.Ct. 2427 (2014). In UARG, the Court invalidated a material part of EPA’s “tailoring” rule which addressed permitting greenhouse gas (GHG) emissions under the Clean Air Act (CAA). In short, the Court held that EPA could not require a source to obtain a Prevention of Significant Deterioration (PSD) or Title V permit solely on the basis of its potential GHG emissions. Among the reasons the Court cited in striking down the “tailoring rule” was that EPA’s permitting thresholds were inconsistent with those expressly set forth in the CAA. After the UARG decision, EPA may still regulate the permitting of GHG emissions from so called “anyway” sources like refineries and power plants that are already subject to regulation under PSD permitting and Title V programs due to their emissions of conventional or hazardous air pollutants, i.e. they are subject to permitting “anyway.” EPA, however, can no longer require PSD or Title V permits for what it terms, “Step 2,” sources which were subjected to PSD permitting requirements based solely on GHG emissions.

Immediately following the UARG ruling, EPA announced it would no longer process new Title V or PSD permit applications for Step 2 sources. EPA, however, did not indicate how it would deal with those Step 2 source permits that were already issued. To resolve this issue, in December 2014, EPA announced that it intended to: 1) initiate rulemaking to revise its regulations to authorize the rescission of EPA-Issued Step 2 PSD permits; and 2) provide No Action Assurances to Step 2 source permit holders to protect them from enforcement related to GHG permit requirements during this rulemaking and rescission process.

The Permit Rescission Process
Existing EPA regulations make clear that all PSD permits remain in effect unless and until they expire or are rescinded. Under current rules, sources holding PSD permits may request rescission and EPA may grant recession when the applicant shows that PSD permitting requirements are inapplicable to the source. Following UARG, it is clear that PSD permitting requirements do not apply to those sources subjected to the program based solely on GHG emissions. As written, however, the rescission provision limits EPA’s authority to rescind to those PSD permits issued “on or before July 1987.” Because Step 2 PSD permitting requirements for GHGs took effect in 2011, EPA determined that existing rescission authority is insufficient to allow it to rescind those permits.

To resolve this issue, EPA announced in its first December memo that it will initiate independent rulemaking to revise the PSD regulations to enable rescission of Step 2 PSD permits for GHG emissions. EPA expects to complete this rulemaking by year end. Once the revised rule is promulgated, permit holders seeking rescission will likely be required to demonstrate that:

• (1) at the time of permit issuance, the source did not emit or have the potential to emit any regulated pollutant other than GHGs at levels above permitting thresholds applicable to that type of source; and
• (2) the source is in compliance with applicable minor source requirements.

The revised rescission rule will not allow EPA to rescind similar PSD or Title V permits issued by state, local, and tribal permitting authorities. Holders of these permits are expected to consult with these other permitting authorities to determine appropriate next steps.

No Further Assurances Protection
The Timing of a Safe Harbor
Because permits invalidated by the UARG decision technically remain in effect until formally rescinded by EPA, the Agency also announced in its December memos that it will not pursue enforcement of GHG related terms and conditions (and any related terms and conditions in a source’s Title V permit) until September 30, 2016. EPA believes this safe harbor provides sufficient time for the revised rule to become finalized and the permit rescission process to be completed.

The Scope of the Safe Harbor
In announcing this No Action Assurance, EPA specifically identified three important limitations on its scope. First, the No Action Assurance only applies to the GHG related terms and conditions in EPA-issued Step 2 permits. It does not apply to any terms or conditions in Step 2 PSD permits which apply to non-GHG pollutants. Thus, permit holders may still be required to comply with other applicable permitting obligations like minor New Source Review requirements. Second, the No Action Assurance does not apply to separate state or federal requirements. Step 2 PSD permit holders, therefore, should consult with state and local authorities to confirm that compliance with GHG related terms of their permit is not required for compliance with state or local law. Third, the No Action Assurance does not relieve permit holders from any obligation to comply with permit terms mandated by separate statutory or regulatory provisions.

In sum, current holders of EPA-issued Step 2 PSD permits should be aware that although EPA issued No Action Assurances for GHG related permit terms, non-compliance with these permit terms is not always excused.

We will continue monitoring the development of EPA’s permit rescission rule.

For more information on the matters discussed in this Locke Lord QuickStudy, please contact the authors.