January 2012

In a blistering letter published earlier in the week, the head of Texas’s environmental agency and the State’s attorney general told the U.S. Environmental Protection Agency (EPA): ”Texas has neither the authority nor the intention of interpreting, ignoring, or amending its laws in order to compel the permitting of greenhouse gas regulations.”

The letter, by Texas Commission on Environmental Quality (TCEQ) Chairman Bryan Shaw and Attorney General Gregg Abbott, comes hard on heels of EPA’s denial of 10 petitions (including one from the State of Texas) to reconsider EPA’s endangerment rule. That rule — the agency’s response to the Supreme Court’s 5-4 decision in Massachusetts v. EPA – is both trigger and precedent for potentially dramatic and far-reaching Clean Air Act restrictions on fossil energy production and use.

More pertinently, Shaw and Abbott sent their letter on August 2, 2010, the deadline EPA had set in its Final Tailoring Rule (p. 31582) for States to explain how they plan to apply Clean Air Act permitting programs to stationary sources of greenhouse gases. Instead, the Texas officials all but told EPA to go jump in the lake. 

Tailoring Absurdity

EPA adopted the Tailoring Rule to fix a problem of its own making. By adopting the endangerment rule, EPA obligated itself to establish greenhouse gas emission standards for new motor vehicles. The standards make carbon dioxide (CO2) a “regulated air pollutant,” which in turn makes any “major stationary source” of CO2 “subject to regulation” under the Clean Air Act’s Prevention of Significant Deterioration (PSD) pre-construction permitting program and Title V operating permits program. 

The problem is that literally millions of  hitherto unregulated entities qualify as “major” sources of CO2 under those programs. The “major” source “applicability threshold” for PSD is a potential to emit 250 tons per year (tpy) of a regulated air pollutant. The threshold for Title V is even lower — a potential to emit 100 tpy. Whereas only large industrial facilities emit bona fide air pollutants in those quantities, millions of small entities never before subject to Clean Air Act permitting requirements — big box stores, office buildings, apartment complexes, restaurants, hospitals, schools — emit CO2 in the threshold amounts.

Applying the Clean Air Act to greenhouse gases thus produces what EPA itself describes as “absurd results.” For example, EPA and its State counterparts would have to process an estimated 41,000 PSD permits per year (up from 280) and 6.1 million Title V operating permits per year (up from 15,000). The ensuing “permit gridlock” would clog up environmental enforcement, stifle new construction, and force millions of firms to either operate illegally or close down. All on President Obama’s watch; all in the midst of a deep recession.

Rather than draw the reasonable conclusion that Congress did not intend to regulate greenhouse gases via the Clean Air Act, EPA decided that Congress must have intended for the agency to ”tailor” — that is, amend — the Act so the agency can regulate greenhouse gases without wrecking the economy. So, while the law specifies 100/250 tpy as the applicability thresholds for the permitting programs, the Tailoring Rule sets the cutoff at 100,000 tpy over the next two years and at not less than 50,000 over the next six years.

In addition, under the Tailoring Rule, modifications to an existing source won’t be considered “significant” — that is, won’t trigger the PSD process — unless the changes increase emissions by 75,000 tpy.

The Texas environmental chairman and AG aren’t buying it:

You have declared that EPA’s decision to enact automobile tailpipe emission limits for greenhouse gases pursuant to Title II of the federal Clean Air Act renders such gases immediately ”subject to regulation” for all purposes under the Act, including Title I Prevention of Significant Deterioration (PSD) pre-construction permitting program  and the Title V operating permit program. Simultaneously, however, you recognize that permitting greenhouse gases under the Act is “absurd.” . . . We agree.

They continue:

In order to avoid the absurd results of EPA’s own creation, you have developed a “tailoring rule” in which you have substituted your own judgment for Congress’s as to how deep and wide to spread the permitting burden.

And a bit later:

Instead of acknowledging that congressionally set emission limits [applicability thresholds] preclude the regulation of greenhouse gases, you instead re-write those statutorily-established limits . . . .

Problem Unsolved

Okay, now we get to the meat of the matter. PSD and Title V are mostly administered by States, not by EPA, and most State Implementation Plans (SIPs) define “major” emitting facility exactly as the Clean Air Act does. This means that even if the Tailoring Rule shields small entities from PSD and Title V regulation by EPA, it would not shield them from regulation by State agencies. EPA discussed this problem in its Proposed Tailoring Rule (p. 33542). ”Virtually all of [the EPA-approved SIPs] establish the PSD permitting threshold at the 100/250-tpy level,” EPA noted. Indeed, ”a few States have adopted lower permitting threshold levels.” In addition, “virtually all EPA-approved SIPs establish the significance level” for modifications triggering PSD “at zero” emissions in the case of previously unregulated air pollutants — not at 10,000 tpy, as EPA initially proposed, much less at 75,000 tpy, as the Final Rule stipulates.

Initially, EPA proposed to withdraw federal approval from those portions of SIPS incorporating the older thresholds and significance levels. This would mean, however, that the lower thresholds would “remain on the books under State law, and sources therefore remain subject to them as a matter of State law” (Proposed Tailoring Rule, p. 55343). In short, the regulatory nightmare would continue. For further discussion, see Peabody Energy’s comment on the Proposed Tailoring Rule.

Of course, States have the option to revise their SIPs and amend their clean air laws. But that could take years. Thus, notwithstanding EPA’s “tailoring,” small entities would find themselves “subject to regulation” under State PSD and Title V requirements on January 1, 2011, when the agency’s greenhouse gas tailpipe emission standards go into effect. As the Final Tailoring Rule observes, “Commenters stated that States would need to undertake a regulatory and/or legislative process to change the threshold in their state laws which they could not complete before the laws would otherwise require issuance of operating permits to GHG sources” (p. 31583).

Semantics Rule?

So what is EPA’s solution? Instead of changing the definition of “major stationary source,” EPA is changing the definition of “subject to regulation.” The agency, “by interpretation,” now defines “subject to regulation” as not including a “major source” of greenhouse gases unless the source has a potential to emit 100,000 tpy on a CO2-equivalent basis. EPA crows that “we find no substantive difference” between how the initially-proposed rule and how the final rule “tailors” the permitting requirements. EPA says that States similarly, “by interpretation,” can redefine “subject to regulation,” allowing them to exempt small sources from PSD and Title V without changing their SIPs or laws: 

Whether we add [higher] GHG thresholds directly to the definition of “major source” (as we proposed), or alternatively, expressly add and define the term “subject to regulation” [so that it only applies to sources emitting at least 100,000 tpy], both approaches revise the definition of “major source” to implement the Tailoring Rule. Accordingly, we adopt the later approach to facilitate state implementation of the final rule through an interpretation of existing state part 70 programs.

If you are confused as to how redefining “subject to regulation” can produce the same substantive result as redefining “major source” yet not similarly require States to change their SIPs or laws, you are not alone. It’s this attempt to turn law into a semantic game that the Texas officials refuse to play.

They write:

In the Tailoring Rule you have asked TCEQ to report to you by August 2, 2010 whether it would “interpret” the undefined phrase “subject to regulation” in TCEQ Rule 116.12 consistent with the newly promulgated definition of EPA Rule 51.166 in all its specifics and particulars. . . .In other words, you have asked Texas to agree that when it promulgated its air quality permitting program rules for pollutants “subject to regulation” in 1993, that Texas really meant to define the term “subject to regulation” as set forth in the dozens of paragraphs and sub-paragraphs of EPA Rule 51.166, first promulgated in 2010.

TCEQ Rule 116.12 was last amended in 2006. It “adopts” the Clean Air Act “by reference” — but only as the Act existed at the time of adoption. To adopt subsequent changes made by EPA, TCEQ would have to amend Rule 116.2 through a formal rulemaking process. Adopting such changes by mere act of “interpretation” would delegate more authority to EPA than the Texas Constitution allows.  

In addition, the Texas officials argue, “TCEQ is also precluded from adopting EPA’s newly-minted definition of “subject to regulation” by the “express terms of the Texas Government Code, which requires public notice of agency rulemaking.” They explain:

When the TECQ promulgated Rule 116.12 in 1993, or even when it last amended the rule in 2006, it had no intention of enacting a permitting program for greenhouse gases. Consequently, TCEQ had no reason to (nor did it) give public notice of any such intent. Obviously, Texans concerned with greenhouse gas permitting could not have known to participate and comment on the decision to require permits for pollutants “subject to regulation” in 2006, when the EPA first discovered greenhouse gases were “subject to regulation” in 2010. It should go without saying that the nearly infinite expansion of Texas’ permitting programs to include greenhouse gases with no state-level rulemaking at all would not satisfy Texas or federal law requiring notice and an opportunity to be heard.

Of course, one could say that the whole point of the Supreme Court’s decision in Massachusetts v. EPA, which pushed the agency to issue an endangerment rule, and the ensuing cascade of CO2 controls was to bypass the democratic process and confront the public with regulatory fait accompli.

Another Bite at the Apple?

It will be interesting to see how all this plays out. If Texas sticks to its guns, EPA may simply take over the Texas PSD program, in whole or in part, through a federally-imposed Federal Implementation Plan (FIP). Florida, for example, told EPA it could not make the regulatory changes in time, so EPA would just have to take over the Florida program. EPA reportedly is working on a “backstop rule” authorizing the agency to take over State permitting of greenhouse gases on a temporary basis (Environmental NewsStand, August 5, 2010, subscription required).

However, what if Texas still refuses to cooperate? Would EPA sue? Such a case might work its way up to the Supremes. The Court might then have to face the core issue it ducked in Mass. v. EPA – whether Congress intended for EPA to regulate greenhouse gases under the Clean Air Act as a whole, including PSD, Title V, and the national ambient air quality standards (NAAQS) program. The Court would have an opportunity to reconsider Mass. v. EPA in light of the absurd results to which it has led. A long shot — but a consummation devoutly to be wished.