EPA’s Tailoring Rule: Temporary, Dubious, Incomplete Antidote to Massachusetts v. EPA’s Legacy of Absurd Results (Part 2)

By Marlo Lewis -- January 8, 2010

This post is Part 2 of my examination of EPA’s Tailoring Rule — the Agency’s attempt to amend the Clean Air Act’s (CAA) Prevention of Significant Deterioration (PSD) pre-construction permitting program and Title V operating permits program so that they can be applied to carbon dioxide (CO2) and other greenhouse gases (GHGs) without spawning an economically-chilling administrative morass. Yesterday’s post argued that the Supreme Court’s decision in Massachusetts v. EPA set the stage for an administrative disaster that EPA rightly describes as “unprecedented” and “absurd.” Today’s post examines the adequacy of the Tailoring Rule as a regulatory relief measure, finds it woefully inadequate, and advises EPA not to oppose legislative action to protect the economy from Mass. v. EPA‘s regulatory fallout.

V. Tailoring Rule: Small Business Protection Is Temporary, Dubious, and Incomplete

Industry is unlikely to challenge the Tailoring Rule, since it aims to shield substantial numbers of small entities from PSD and Title V regulation of CO2 for a period of six years. However, the business community would be unwise to rely on the Tailoring Rule for protection from the regulatory fallout of Mass v. EPA.

First, as noted earlier, the Tailoring Rule is actually an Amending Rule and, hence, is legally dubious. The Tailoring Rule proposes sweeping “categorical exemptions” from the PSD and Title V programs, and, as EPA acknowledges, courts generally have looked with disfavor upon such broad carve-outs in previous administrative necessity cases (TR, 55313).

Second, the “categorical exemptions” proposed in the Tailoring Rule are by design temporary, expiring after six years. EPA envisions the Tailoring Rule as phase one of a “step-by-step process” whereby PSD and Title V apply to smaller and smaller entities (TR, 55305, 55319).  EPA picked 25,000 TPY to be the “major” source applicability threshold for CO2 regulation under PSD and Title V, because any lower threshold would overwhelm the administrative resources of permitting agencies (TR, 55330).  But over the next five years, EPA proposes to develop “streamlined” permitting procedures, expanding the number of firms permitting agencies can regulate. Moreover, agencies will lobby for additional staff and other resources to accommodate larger and larger workloads (TR, 55296).

Even during the initial six-year period, the Tailoring Rule would not shield small entities from other types of CO2 regulation EPA is contemplating:

While EPA is proposing that during the first phase, GHG sources less than 25,000 TPY of CO2e will not be subject to PSD and Title V requirements for purposes of applicability, there are feasible, cost-effective opportunities for reductions from these sources through means other than PSD and Title V during the first phase. The tailoring proposal does not restrict our ability to explore these opportunities during the first phase. EPA has strong interest in pursuing such opportunities and therefore requests your comments on the practicability of near-term regulatory and non-regulatory programs to address smaller sources. [TR, 55325]

Third, most of the “streamlining” procedures EPA is considering after the six-year exemption expires are of questionable legality and effectiveness. Redefining “potential to emit” (PTE) to mean actual emissions would allow many sources to avoid the classification as “major” emitting facilities (TR, 55296).  But the statute specifically defines the PSD and Title V applicability thresholds in terms of PTE. Moreover, as a study by Mark and Portia Mills for the U.S. Chamber of Commerce shows, approximately 1.2 million small entities actually emit 250 TPY of CO2.   All would be vulnerable to new PSD-related regulation, paperwork, penalties, and litigation. There is no explicit authority in the Act’s PSD provisions for “general permits” or “presumptive BACT” determinations. In fact, as EPA acknowledges, these options would appear to conflict with the CAA Sec. 165, which requires a “public hearing” on each PSD permit, and Sec. 169, which requires BACT to be determined for each major source on a “case-by-case” basis (TR, 55321-55323).  At best, these makeshifts would reduce irrational regulatory burden on small entities, not eliminate them.

Fourth, the Tailoring Rule and the future streamlined permitting procedures, even if upheld by courts, would do nothing to shield the U.S. economy from the compliance burdens and market impacts of a NAAQS rulemaking for CO2 and other GHGs. The next section explores this key issue.

VI. NAAQS for CO2: Mass v. EPA‘s Most Absurd Result

Plaintiffs in Mass v. EPA (Brief for Petitioners, August 31, 2006, p. 28) claimed the case dealt solely with emissions from new motor vehicles, arguing, for example, that, “The NAAQS [National Ambient Air Quality Standards] program is entirely separate from the mobile source program at issue in this case.”  That is incorrect.

GHG regulation of motor vehicles would trigger PSD regulation of CO2, and PSD is an essential adjunct of the NAAQS program. The PSD program’s basic purpose is to prevent “significant deterioration” of air quality in areas that comply with NAAQS (CAA Sec. 160).

More importantly, the endangerment finding prerequisite to establishing GHG emissions standards for new motor vehicles would set a precedent for similar endangerment findings under other CAA provisions, including CAA Sec. 108, which governs the first phase of a NAAQS rulemaking.

CAA Sec. 108 requires EPA to begin a NAAQS rulemaking if emissions of an air pollutant from “numerous or diverse mobile or stationary sources” cause or contribute to “air pollution” that “may reasonably be anticipated to endanger public health or welfare.” New motor vehicles – the emission sources at issue in Mass. v. EPA – obviously qualify as numerous mobile sources under CAA Sec. 108. In addition, EPA’s endangerment finding argues that GHG emissions as such, whether from mobile or stationary sources, endanger public health and welfare. Logically, EPA has already made the substantive case for economy-wide GHG regulation under the NAAQS program.

A NAAQS is an allowable pollution concentration standard. It determines how many parts per million (ppm) or billion of a targeted pollutant are permissible in the ambient air. Petitioners in Mass v. EPA asserted that current GHG levels already harm public health and welfare: “Petitioners injuries are not ‘some day’ injuries as respondents contend…; they are injuries in the here and now” (Petitioners’ Final Reply Brief, Nov. 15, 2006, p. 2). Similarly, several endangerment petitions filed since Mass v. EPA (to regulate GHG emissions from aircraft, marine vessels, off-road engines, and heavy-duty trucks) claim that GHG-related “air pollution” already harms public health and welfare (ANPR, 44399).

More importantly, EPA is now on record affirming that “elevated concentrations of greenhouse gases in the atmosphere may reasonably be anticipated to endanger the public health and to endanger the public welfare of current and future generations” (Final Endangerment Finding, 66516). By “elevated concentrations,” EPA means elevated above pre-industrial concentrations, which includes current concentrations. Moreover, EPA says elevated concentrations endanger “current” as well as “future” generations. To repeat, EPA has already affirmed the substance of a CAA Sec. 108 endangerment determination.

Numerous environmental organizations and activists now argue that climate policy in general and NAAQS regulation in particular should aim to lower CO2 concentrations from today’s level (roughly 387 ppm) to 350 ppm.  In December 2009, two eco-litigation groups, the Center for Biological Diversity and 350.org, petitioned EPA to initiate a rulemaking to establish NAAQS for CO2 at 350 ppm and NAAQS for methane and nitrous oxides at pre-industrial levels.

Attaining such NAAQS would definitely require “extreme measures” — exactly what the  Massachusetts Court assured us its decision would not entail. Even stabilization of CO2 concentrations at 450 ppm may not be attainable at an acceptable cost, as Newsweek reporter Sharon Begley learned when she interviewed Cal Tech chemist Nathan Lewis:

Lewis’s numbers show the enormous challenge we face. The world used 14 trillion watts (14 terawatts) of power in 2006. Assuming minimal population growth (to 9 billion people), slow economic growth (1.6 percent a year, practically recession level) and—this is key—unprecedented energy efficiency (improvements of 500 percent relative to current U.S. levels, worldwide), it will use 28 terawatts in 2050. (In a business-as-usual scenario, we would need 45 terawatts.) Simple physics shows that in order to keep CO2 to 450 ppm, 26.5 of those terawatts must be zero-carbon. That’s a lot of solar, wind, hydro, biofuels and nuclear, especially since renewables kicked in a measly 0.2 terawatts in 2006 and nuclear provided 0.9 terawatts. Are you a fan of nuclear? To get 10 terawatts, less than half of what we’ll need in 2050, Lewis calculates, we’d have to build 10,000 reactors, or one every other day starting now. Do you like wind? If you use every single breeze that blows on land, you’ll get 10 or 15 terawatts. Since it’s impossible to capture all the wind, a more realistic number is 3 terawatts, or 1 million state-of-the art turbines, and even that requires storing the energy — something we don’t know how to do — for when the wind doesn’t blow. Solar? To get 10 terawatts by 2050, Lewis calculates, we’d need to cover 1 million roofs with panels every day from now until then. “It would take an army,” he says. Obama promised green jobs, but still.

Note also that under the CAA, states could not wait until 2050 to attain a NAAQS for CO2. Rather, all areas in non-attainment with a “primary” or health-based CO2 NAAQS must come into attainment within five years, or at most 10 years if EPA grants an extension (CAA Sec. 192). Because GHGs tend to be long-lived in the global atmosphere, even if the entire world somehow magically reduced annual emissions to the level prevailing in 1970, when the global economy was only one-third its current size, global CO2 concentrations would still increase to 483 ppm by 2100.  Not even complete collapse of the global economy would be enough to lower CO2 concentrations to 350 ppm in ten years.

If courts agree with CBD and 350.org that EPA is logically committed to find endangerment for GHGs under CAA Sec. 108, what will EPA do? Will the Agency propose another Tailoring Rule to re-imagine the five- and 10-year NAAQS deadlines to mean 50 or 100  years?

Even if courts allow EPA to amend the NAAQS attainment deadlines, a protracted period of NAAQS non-attainment would impose substantial burdens on the economy. EPA would have to regulate major stationary CO2 sources under the Non-Attainment New Source Review (NNSR) pre-construction permitting program, which is more restrictive than PSD. The NNSR cutoff for regulation as a major source is 100 TPY, not 250 TPY as would be the case for most PSD-regulated CO2 sources. To avoid an NNSR administrative debacle, EPA would have to issue yet another tailoring rule.

NNSR-regulated entities must comply with Lowest Achievable Emission Rate (LAER) standards, which are more stringent than BACT because EPA may not take compliance costs into account. Moreover, major sources would have to “offset” any emissions increase from a new or modified source by reducing emissions from an existing source somewhere else (CAA Sec. 173). Roughly speaking, no facilities could be built or expanded anywhere in the nation unless something else shuts down. NNSR would function as a de-facto moratorium on growth.

Although states may take costs into account when developing their plans to implement NAAQS, EPA may not consider costs when setting NAAQS (Whitman v. American Trucking Associations, Inc., 531 U.S. 457, 465, 2001).  Establishing NAAQS for CO2 would turn the CAA into an economy-killer and EPA into a rogue agency. Public outrage would be intense, and pleas that “The Court made us do it!” would likely fall on deaf ears.

VII. Conclusion

EPA is taking an enormous gamble. The Agency is betting that, through the Tailoring Rule, it can control the regulatory cascade set in motion by its endangerment finding. But the Tailoring Rule is legally dubious, and even if courts allow EPA to amend the PSD and Title V permitting programs, the endangerment finding is precedent for a NAAQS rulemaking, which could damage the economy even more than would a PSD/Title V administrative morass.

Having sown the wind, EPA risks reaping a whirlwind of angry opposition from governors, mayors, congressional appropriators, small business, unions, talk radio, etc. No agency likes to surrender power, and for EPA there is no power more seductive than the power to regulate CO2, which would expand the Agency’s reach to virtually every nook and cranny in the economy. Once unleashed, however, the coveted power is subject to the vagaries of litigation. EPA may find itself responsible a regulatory chain reaction it cannot control.

The road EPA has made for itself is fraught with political peril. As noted in yesterday’s post, Rep. Marsha Blackburn (R-TN) has introduced legislation that would overturn Mass. v. EPA by exempting GHGs from regulation under the CAA; Rep. Joe Barton (R-TX) plans to introduce a resolution of disapproval that would overturn EPA’s endangerment finding; and Sen. Lisa Murkowski (R-AK) has introduced a debt ceiling bill amendment that would prohibit EPA from expending funds to regulate CO2 from stationary sources for one year. It is in the Agency’s best interest not to oppose these congressional initiatives.