EPA’s Tailoring Rule: Temporary, Dubious, Incomplete Antidote To Massachusetts v. EPA’s Legacy of Absurd Results (Part 1)

By Marlo Lewis -- January 7, 2010

(Note: This column is adapted from a forthcoming article, co-authored with former Virgiania Governor George F. Allen, in the University of Richmond Law Review.)  

December 28, 2009 was the final day to submit comments on the Environmental Protection Agency’s (EPA’s) proposed Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule.  This is the rulemaking in which EPA proposes to “tailor” the Clean Air Act’s (CAA or Act’s) 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.

The Tailoring Rule is an eye opener, because it reveals, or rather confirms in spades, that the Supreme Court’s decision in Massachusetts v. EPA has created an almost bottomless well of “absurd results” — disastrous consequences that EPA can avoid only by poaching legislative power and amending the Act.

The present post is Part 1 of a two-part column the argument of which may be summarized as follows:

1. In Massachusetts v. EPA, the Supreme Court legislated from the bench, authorizing and indeed pushing EPA to control GHG emissions for climate change purposes. This is a policy decision of immense economic and political magnitude that Congress never intended or approved when it enacted and amended the CAA.
2. Regulating GHGs under the CAA leads inexorably to “absurd results,” including an economy-stifling administrative quagmire.
3. To prevent GHG regulation from overwhelming agency administrative resources and blocking economic development, EPA proposes to suspend, for six years, the “major” source applicability thresholds for the CAA pre-construction and operating permits programs. That is, EPA proposes to amend the Act. This violation of the separation of powers compounds the constitutional crisis inherent in the Court’s substitution of its will for that of the people’s elected representatives.
4. The small-business protections proposed in the Tailoring Rule are temporary, legally dubious, and incomplete. Even if courts uphold the Tailoring Rule, despite its flouting of clear statutory language, it will not avert the most absurd result of the Court’s misreading of the CAA:  regulation of CO2 and other GHGs under the National Ambient Air Quality Standards (NAAQS) program.
5. EPA runs enormous political risks leading the charge for GHG regulations not approved by Congress. It is in the Agency’s best interest not to oppose legislative action to overturn the endangerment finding and Mass. v. EPA or block EPA regulation of CO2 from stationary sources.

Today’s post covers points 1-3; tomorrow’s covers points 4-5.

I. Introduction

The Tailoring Rule “will relieve the regulatory burden” associated with the Clean Air Act’s (CAA) Prevention of Significant Deterioration (PSD) pre-construction permitting program and title V operating permits program “for a substantial number of small entities” (TR, 55349).  However, the burdens to be relieved are a consequence of EPA’s motor vehicle greenhouse gas (GHG) emissions rule,  which in turn is a consequence of EPA’s endangerment finding for GHG-related “air pollution.”  On both legal and scientific grounds (discussed here, here, and here), EPA should not have made the endangerment finding in the first place.

The relief proposed by the Tailoring Rule is temporary, phasing down after six years (TR, 55294-55295).  The proposed relief is also legally dubious, because it flouts clear statutory language. Moreover, even if upheld by courts, the Tailoring Rule provides no protection from the compliance burdens and market impacts of CO2 regulation under the NAAQS program — a regulatory action logically required by EPA’s endangerment finding.

EPA is taking an enormous gamble, betting that it can control the regulatory cascade triggered by its endangerment finding and motor vehicle emissions rule. EPA risks launching a major regulatory assault on an economy already in severe distress. Having sown the wind, EPA would then reap the whirlwind — a political backlash against the Agency and the Obama administration. Rep. Joe Barton (R-TX) plans to introduce a resolution of disapproval to overturn the endangerment finding.  Rep. Marsha Blackburn (R-TN) has introduced H.R. 391,  a bill with 148 co-sponsors, to overturn Massachusetts v. EPA.  The Senate may soon vote [Greenwire, 1/24/09] on a debt ceiling bill amendment introduced by Sen. Lisa Murkowski (R-AK) to prohibit EPA for one year from using funds to regulate CO2 emissions from stationary sources. It would be in EPA’s best interest not to oppose these congressional initiatives.

II. Massachusetts v. EPA: Tailoring Disaster

Why is EPA inaugurating a regime of global warming regulation that Congress never voted for or approved?  Because the Supreme Court, in Massachusetts v. EPA (549 U.S. 497, 2007) decided to legislate global warming policy from the bench.

In Mass. v. EPA, eco-litigation groups, led by a dozen state attorneys general, attempted to do an end run around Congress and impose Kyoto-like policies on the U.S. economy through judicial fiat. They found five willing accomplices on the Court, who essentially ruled that Congress authorized EPA to regulate GHGs for climate change purposes when it enacted the CAA in 1970 — decades before global warming became a public concern. The Court’s decision — an affront to common sense — all but ensured that EPA would issue an endangerment finding for greenhouse gases under CAA Sec. 202. That, in turn, compels EPA to establish first-ever GHG emission standards for new motor vehicles.

However, what none of the principals in the case bothered to mention, is that once EPA adopts GHG motor vehicle standards, CO2 becomes a “regulated air pollutant” and, as such, automatically “subject to regulation” under the Act’s PSD and Title V permit programs. Under the CAA, firms must obtain a PSD permit in order to construct or modify a “major” stationary source of regulated air pollutants, and a Title V permit in order to operate such a facility. A facility is major under PSD if it is in one of 28 categories and has a potential to emit 100 tons per year (TPY) of a regulated pollutant, or 250 TPY if it is any other type of establishment. A facility is major under Title V if it has the potential to emit 100 TPY of a regulated pollutant. As it happens, millions of previously unregulated buildings and facilities — office buildings, apartment complexes, big box stores, enclosed malls, heated agricultural facilities, small manufacturing firms, even commercial kitchens — emit enough CO2 to meet these thresholds.

The Court majority, whether naively or disingenuously, rejected respondent EPA’s argument, based on FDA v. Brown & Williamson Tobacco Corp (529 U.S. 120, 123, 2001),  that regulating the carbon content of fuels or emissions was a decision of great “economic and political significance” that Congress would not delegate to an administrative agency in “so cryptic a fashion.” The majority held that an endangerment finding would not lead EPA to undertake “extreme measures,” only to regulate GHG emissions from new motor vehicles, and only after giving “appropriate consideration” to compliance costs and technological feasibility, as required by Sec. 202.  A cost-constrained boost in new-car fuel economy — less pain at the pump! — was the only practical consequence of a decision in favor of plaintiffs, the majority suggested (Mass. v. EPA, 531).

That this was a stupendously false characterization of the real issues and implications of the case has been clear for some time.  The Court majority completely ignored the interconnected nature of the CAA. The majority thus turned a blind eye to the “extreme measures” EPA would have to take under the PSD, Title V, and NAAQS programs if it finds endangerment and adopts motor vehicle GHG emission standards.

EPA’s July 2008 Advanced Notice of Proposed Rulemaking (ANPR) estimated that if CO2 becomes a CAA-regulated air pollutant, PSD permit applications would increase by an “order of magnitude” – from 200-300 to 2,000-3,000 per year – and that Title V permit applications could increase from 15,000 to 550,000 per year (ANPR, 44499, 44511).  The ANPR cautioned that even a ten-fold increase in PSD permit applications could “overwhelm permitting authorities,” creating backlogs and uncertainties that delay large numbers of construction projects” (ANPR, 44507).

The Tailoring Rule reveals that the actual threat to economic development is much greater: “If PSD and Title V requirements apply [to CO2] at the applicability levels provided under the CAA, state permitting authorities would be paralyzed by permit applications in numbers that are orders of magnitude greater than their current administrative resources could accommodate” (TR, 55292). EPA now estimates that PSD permit applications could jump from roughly 280 to 41,000 per year – more than a 140-fold increase. In addition, Title V permit applications would grow from 14,700 to 6.1 million per year – a 400-fold increase (TR, 55301, 55304).  The “enormous numbers of permit applications” would “vastly exceed the current administrative resources of permitting authorities” (TR, 55294).  Permitting agencies would have to expend almost 44 times the current labor-hour allocation for PSD programs and almost 250 times the current labor-hour allocation for Title V programs (TR, 55319).

In short, the CAA permitting programs would crash under their own weight, putting a freeze on new construction, and thrusting millions of firms into legal limbo. Thanks to Mass. v. EPA, the Clean Air Act is about to become an economic wrecking ball aimed straight at small business.

To obtain a PSD permit, firms must undertake a complex, technical investigation to determine how they will comply with “best available control technology” (BACT) standards. Even apart from any investments required to install BACT-compliant technology, the PSD permitting process is costly and time-consuming. In a recent year, each permit on average cost $125,120 and 866 burden hours for sources to obtain, and $23,280 and 301 hours for EPA or a state agency to process.  The PSD administrative burden would be lethal to most small businesses.

Assuming that permitting agencies would have to spend 43 hours to process the average new Title V permit for commercial or residential CO2 sources (or 10% of the time needed for the average industrial permit), EPA estimates that the “total nationwide additional burden for permitting authorities for Title V permits from adding GHG emissions at the 100-TPY threshold would be 340 million hours, which would cost over $15 billion” (TR, 55302).

Note that permitting agencies would spend all that time and money to process the permits of applicants who have essentially nothing to report, because they have no other obligations under the CAA. Almost 98% of the 6.1 million entities that would need Title V permits for CO2 would be filing “empty” or “hollow” permits (TR, 55302, 55336).  For their trouble, they would also have to pay emission fees to help cover the estimated $15 billion in Title V administrative costs (CAA Sec. 502). The going rate for Title V emission fees is $43.75 per ton (TR, 55346).  A small business emitting 100 TPY of CO2 might have to pay annual fees of $4,375 or more in addition to whatever resources it spent on record keeping and paperwork. It would get nothing of value in return. Title V for CO2 would arguably set a new record for government waste.

III. Massachusetts v. EPA: Tailoring Absurdity

The Tailoring Rule proposes to suspend, over a six-year period, the PSD pre-construction permitting program and Title V operating permits program for entities emitting less than 25,000 TPY of carbon dioxide-equivalent (CO2-e) GHGs, and to phase in “streamlined” permitting procedures for smaller and smaller entities after the end of the six-year period (TR, 55294-55295).

In effect, EPA proposes to re-write portions of the Act. Nothing in the Act authorizes EPA to suspend the PSD and Title V provisions for sources exceeding the 100/250 TPY thresholds. Nor does the Act authorize the “streamlined” procedures EPA outlines in the Tailoring Rule (except for the use of general permits in the Title V program). The Tailoring Rule is actually an Amending Rule. As such, it is prima facie illegal — an unconstitutional breach of the separation of powers.

An obvious question arises: Under what authority may EPA deviate so blatantly from the text of the statute? In Chevron v. Natural Resources Defense Council (467 U.S. 837, 843, 1984), the Supreme Court held that administrative agencies have considerable discretion to interpret statutes where the text is “silent or ambiguous with respect to the specific issue.”  However, there is nothing ambiguous about 100 tons or 250 tons.

EPA repeatedly asserts that it must depart from a “literal” application of the PSD and Title V regulatory thresholds. But “literal” is just a sanitized synonym for “legal,” “lawful,” or “statutory.” To justify this assumption of legislative power, EPA invokes the judicial doctrines of “absurd results” and “administrative necessity.”

EPA argues that applying the law as written to CO2 sources would produce two kinds of absurd results. First, EPA would be forced to violate other statutory requirements. Specifically:

• CAA Sec. 165(c) requires that the permitting authority grant or deny any completed PSD permit application for a major emitting facility not later than one year after the date of filing the application. “A literal interpretation of CAA sections 165(a)(1) and 169(1) to apply at the 100/250 TPY levels would render compliance with this provision impossible by requiring far more permit applications than permitting authorities could process under the 12-month deadline” (TR, 55308).
• Similarly, a lawful application of the Title V 100 TPY threshold in CAA sections 502(a), 501(2)(B), and 302(j) would clash with CAA Sec. 503(c), which imposes a time limit of 18 months after a permit application is filed for permitting authorities to issue or deny the permit. “It would be flatly impossible for permitting authorities to meet this statutory requirement if their workload increases from 14,000 permits to 6.1 million. Instead, permit applications would face multi-year delays in obtaining their permits” (TR, 55310).

Applying the PSD and Title V regulatory thresholds to CO2 would also be absurd in the sense that the consequences would undermine congressional intent. The Tailoring Rule provides several examples:

• The PSD program (CAA Sec. 160) is supposed to “insure that economic growth will occur,” albeit in a manner consistent with preservation of clean air resources. However, because PSD is a preconstruction requirement, “increasing permitting authorities’ workload from 300 to 41,000 permits would severely undermine this purpose of facilitating economic growth . . . Each year, many thousands of sources would face multi-year delays in receiving their permits, and as a result, for all practical purposes, they would be forced to place on hold their plans to construct or modify” (TR, 55308).
• More fundamentally, applying PSD to CO2 would undermine a core purpose of the Act — to protect the “productive capacity” of the U.S. population (CAA Sec. 101).
• Congress designed PSD to apply to large industrial facilities, “which due to their size, are financially able to bear the substantial regulatory costs imposed by the PSD provisions and which, as a group, are primarily responsible for emissions of the deleterious pollutants that befoul the nation’s air” [quoting Alabama Power v. Costle, 636 F.2d at 353]. Congress wanted to exclude small entities from PSD regulation (TR, 55308-55309).
• Congress intended through Title V to improve CAA compliance by compiling in a single document all of a major source’s regulatory requirements. However, the vast majority of the 6.1 million CO2 sources that would have to apply for Title V permits have no existing CAA requirements. Compelling them to apply for operating permits “would not improve compliance” (TR, 55311).
• On the contrary, applying Title V to CO2 would undermine compliance. Many sources that Congress did intend for EPA to regulate would not be regulated due to the enormous backlogs resulting from the application of PSD and Title V to myriad sources Congress did not intend for EPA to regulate (TR, 55311).
• In sum, the immense volume of permit applications would overload and crash both programs. Clearly, Congress did not intend for the PSD and Title V programs to self-destruct.

The Tailoring Rule reviews several court cases in which EPA, the Federal Trade Commission, and the Federal Energy Regulation Commission invoked “administrative necessity” to set aside clear statutory language.  In all of these cases, courts rejected the agencies’ attempts to depart from the statute (TR 55312-55314).  But, pleads EPA, the “situation we confront is unprecedented”;  the burdens EPA would encounter in administering PSD and Title V for CO2 “have no precedent in case law” (TR, 55337, 55318).

There is no question that applying the CAA permitting programs to CO2 – the automatic consequence of establishing GHG standards for new motor vehicles – would produce a morass of unprecedented absurdity and administrative impossibility. However, EPA tippy toes around the root of the problem: Mass. v. EPA.

IV. Massachusetts v. EPA: Making a Fortress out of a Bowdlerized Dictionary

EPA is entirely correct: Congress did not intend to apply PSD and Title V to small entities, did not intend for those programs to implode under their own weight, did not intend for PSD to stop development, and did not intend for Title V to undermine compliance with the Act. However, those are the inexorable consequences of an endangerment finding for greenhouse gases under CAA Sec. 202, which in turn is powerful evidence that Congress did not intend for EPA to regulate GHGs under that provision.

Common sense leads to the same conclusion. Congressional support for regulatory climate policy is far stronger today than it was in 1970 and 1977, when Congress enacted and amended CAA Sec. 202. Yet even today, the prospects for cap-and-trade legislation and for U.S. ratification of a legally-binding emission-reduction treaty remain in doubt. The notion that Congress, in 1970 or 1977, implicitly authorized EPA to implement climate policies that recent Congresses have rejected or declined to enact is ludicrous.

Only once has Congress enacted legislation directing EPA to reduce GHG emissions – the renewable fuel standard (RFS) established by the Energy Independence and Security Act (EISA). However, this is the exception that proves the rule. Enacted months after Mass v. EPA was decided, the RFS mandates the sale of renewable fuels, which must achieve specified percentage reductions in GHG emissions, based on a life-cycle analysis, compared to petroleum-based fuels. Importantly, EISA Sec. 210(b)(12) clarifies that the RFS does not establish precedent for any additional regulation of CO2 or other greenhouse gases under other CAA provisions:

Nothing in this subsection, or regulations issued pursuant to this subsection, shall affect or be construed to affect the regulatory status of carbon dioxide or any other greenhouse gas, for purposes of other provisions (including section 165 [i.e., the PSD program] of this Act [i.e., the Clean Air Act].

In the Tailoring Rule, EPA writes as if Congress, when it enacted or amended the CAA in 1970 or 1977, somehow inserted malicious code — the regulatory equivalent of a computer virus — into the text of the statute. This self-destruct program, we are to suppose, was lurking in there all this time. Then all of a sudden, the dormant bug became active, and now the CAA is going haywire, working at cross purposes with itself, subverting congressional intent, and imperiling the nation’s economic future. Therefore, EPA must step in, play lawmaker, and amend the Act. And if anybody at EPA really believes that, I’ve got a bridge I’d like to sell him.

When a court decision leads to absurd results and administrative paralysis, there are only two possibilities. Either (1) absurdity and administrative impossibility were embedded in the statute from the beginning, and the court just brought the statute’s flaws to light. Or (2) the court manufactured the bizarre malfunctioning of the statute by misreading it.

The impending PSD/Title V red-tape nightmare is entirely a product of the Massachusetts Court’s agenda-driven decision. The core issue in Mass. v. EPA, which the Court never addressed, is whether Congress, when it enacted and amended CAA Sec. 202 in 1970 and 1977, intended for EPA to apply the Act as a whole, including PSD and Title V and the NAAQS program, to CO2 for global warming purposes. To ask this question is to answer it.

To justify the Amending Rule, EPA quotes Judge Learned Hand’s famous injunction “not to make a fortress out of the dictionary”  when interpreting a statute (TR, 55306). But that is what the Court majority did in Mass. v. EPA. More precisely, the majority made a fortress out of their own bowdlerized version of the CAA definition of “air pollutant.”

To reach the conclusion that CO2 is an “air pollutant” for regulatory purposes, the Court majority had to withhold Chevron deference from respondent EPA’s reasonable reading of CAA Sec. 302(g). EPA argued that emitted substances are “air pollutants” only if they are “air pollution agents.” The majority, following petitioners, held that anything emitted per se is an “air pollutant.” This was in fact the lynchpin of petitioners’ argument and the majority’s conclusion. Obviously, if anything emitted into the ambient air is ipso facto an “air pollutant,” then GHGs are within EPA‘s regulatory reach. But to affirm this conclusion, the majority had to read Sec. 302(g) selectively — no mean feat, since the provision is only two sentences long. Here it is, in full:

The term “air pollutant” means any air pollution agent or combination of such agents, including any physical, chemical, biological, or radioactive (including source material, special nuclear material, and by-product material) substance or matter, which is emitted into, or otherwise enters, the ambient air. Such term includes any precursors to the formation of any air pollutant, to the extent that the Administrator has identified such precursor or precursors for the particular purpose for which the term “air pollutant” is used.

If Congress had meant that any substance emitted into or otherwise entering the ambient air is an “air pollutant,” it could have easily said so. Instead, the text says that any “air pollution agent” or “combination of such agents” emitted into or otherwise entering is an “air pollutant.” An air pollution “agent” is something that causes air pollution — something that dirties, fouls, or contaminates the air. Carbon dioxide emissions do not fit that description.

The Court majority read “air pollution agent” as a synonym for “air pollutant” rather than as a criterion for distinguishing pollutants from non-pollutants. This reading makes the first sentence of Sec. 302(g) hopelessly circular. It might as well say: “The term ‘air pollutant’ means any air pollutant or combination of such pollutants…” This is not what Congress wrote and is not likely what Congress meant, because circular definitions define nothing.

Worse, treating “air pollutant” and “air pollution agent” as interchangeable terms turns the first sentence into a formalism whereby a thing can be an “air pollutant” even if it does not pollute the air. As Justice Scalia quipped in dissent, the majority effectively held that “anything airborne, from Frisbees to flatulence, qualifies as an ‘air pollutant'” (Mass. v. EPA, 558).  Indeed, under the majority‘s reading, even completely clean air — air that is 100% pollution-free — is an “air pollutant” if it is “emitted” or “otherwise enters.” That is absurd. From absurd premises come absurd results.

The majority not only gave short shrift to “air pollution agent” and “combination of such agents” — key terms in the first sentence — they totally ignored the second sentence. The second sentence of Sec. 302(g) says that a “precursor” of a previously designated air pollutant is also an air pollutant. This sentence would be utterly superfluous if, as the majority held, anything “emitted” or “otherwise entering” is automatically an “air pollutant,” because precursors form air pollutants only by being emitted into or otherwise entering the air. Courts are not supposed to assume that lawmakers pad statutes with superfluous verbiage. Rather, they are supposed to make a good faith effort to determine the meaning and implications of each sentence of each provision bearing on the case. Ignoring half the provision in dispute without explanation is not kosher.

Making a “fortress of the dictionary” is bound to lead to absurd results, especially when judges bowdlerize the dictionary.

Tomorrow’s post examines 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.