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Overview

On June 26, 2012, the D.C. Circuit Court of Appeals upheld the U.S. EPA's (EPA) greenhouse gas regulatory program in Coalition for Responsible Regulation v. EPA, D.C. Cir., No. 09-1322. The Coalition decision dismissed industry challenges to EPA's Tailoring Rule, which limits greenhouse gas permitting to the largest industrial sources. Additionally, the court denied challenges to EPA's greenhouse gas Endangerment Finding and subsequent emissions standards for cars and light-duty trucks.

The litigation is the latest round of a half-decade-long battle regarding the regulation of greenhouse gases by EPA. In 2007, the U.S. Supreme Court issued its decision in Massachusetts v. EPA, holding that greenhouse gases are "air pollutants" within the meaning of the Clean Air Act (CAA), and thus subject to regulation by EPA if it determined that air pollutants "may reasonably be anticipated to endanger public health or welfare" as provided in Section 202 of the CAA. In December 2009, EPA issued just such a determination. The Endangerment Finding defined as a single air pollutant an "aggregate group of six long-lived and directly-emitted greenhouse gases" that are "well mixed" together in the atmosphere and that cause global climate change: carbon dioxide, methane, nitrous oxide, hydroflourocarbons, perflourocarbons and sulfur hexafluoride. EPA chose to measure the impact of these gases on a "carbon dioxide equivalent basis," known as CO2e, based on the gases' "warming effect relative to carbon dioxide ... over a specified timeframe."

The agency promulgated its Tailpipe Rule for greenhouse gases on May 7, 2010. The Tailpipe Rule set greenhouse gas emission standards for cars and light trucks as part of a joint rulemaking with fuel economy standards issued by the National Highway Traffic Safety Administration.

Based on EPA's longstanding interpretation of the CAA, the Tailpipe Rule automatically triggered applicability of two permitting requirements to stationary greenhouse gas emitters. The first, the Prevention of Significant Deterioration of Air Quality (PSD) program, requires state-issued pre-construction permits for stationary sources - generally, those that have the potential to emit more than 250 tons per year (tpy) of "any air pollutant" (or, for certain specified sources, 100 tpy). The second provision, Title V, generally requires state-issued operating permits for stationary sources that have the potential to emit at least 100 tpy of "any air pollutant" (or that are subject to certain federal new source performance standards or hazardous air pollutant standards).

EPA has interpreted the phrase "any air pollutant" in both these provisions to mean any air pollutant that is regulated under the CAA. Thus, once the Tailpipe Rule set motor-vehicle emission standards for greenhouse gases, they became regulated pollutants under the Act, requiring PSD and Title V permitting.

EPA issued two rules in connection with these developments. First, in the Timing Rule, EPA concluded that an air pollutant becomes "subject to regulation" under the CAA - and thus subject to PSD and Title V permitting - at the time a regulation requiring control of that pollutant takes effect. Therefore, EPA concluded, major stationary emitters of greenhouse gases would be subject to PSD and Title V permitting regulations on January 2, 2011 - the date on which the Tailpipe Rule became effective, and thus, the date when greenhouse gases first became regulated under the CAA.

Next, EPA promulgated the Tailoring Rule, in which it noted that greenhouse gases are emitted in far greater volumes than other pollutants. Indeed, millions of industrial, residential and commercial sources exceed the 100/250 tpy potential emissions threshold for CO2e. Departing from the CAA's 100/250 tpy emissions threshold, the Tailoring Rule provided that only the largest sources - those exceeding 75,000 or 100,000 tpy CO2e, depending on the program (i.e., Title V or PSD) and project (i.e., for new or existing sources) - would initially be subject to greenhouse gas permitting.

Relying on traditional notions of deference to agency decision-making, the D.C. Circuit first upheld the Endangerment Finding, concluding that "EPA had before it substantial record evidence that anthropogenic emissions of greenhouse gases 'very likely' caused warming of the climate over the last several decades." The court likewise upheld the Tailpipe Rule, finding sufficient justification in the administrative record. The court then concluded that EPA was correct in its interpretation that regulation of greenhouse gases under the Tailpipe Rule mandated the regulation of stationary sources.

The court further noted that the Timing and Tailoring Rules did not regulate stationary sources - such sources are regulated as a consequence of greenhouse gases being regulated under the Tailpipe Rule. In the court's view, the Timing and Tailoring Rules simply extended the timeline for initial compliance and narrowed the universe of facilities that would be subject to such regulations. As a consequence, sources subject to PSD requirements for their conventional pollutants (i.e., those sources that exceeded the statutory emissions thresholds for regulated non-greenhouse gas pollutants) are required to install best available control technology for their greenhouse gas emissions. Furthermore, PSD permits for sources with the potential to emit more than 100,000 tpy CO2e after a proposed construction project, or 75,000 tpy CO2e after a proposed modification project at a "major stationary source" are subject to regulation. Furthermore, the Tailoring Rule limits applicability of Title V permits to sources that have the potential to emit more than 100,000 tpy CO2e. On July 3, 2012, EPA announced that it would not regulate, under "Step 3," smaller sources of greenhouse gases. It is possible environmental interest groups will challenge this determination in the courts, which could force EPA into regulating these smaller sources. In connection with the Tailoring Rule challenge, the court concluded that the challengers lacked standing, and thus dismissed that challenge without assessing the merits of the challenge.

Greenhouse gases subject to the Timing and Tailoring Rules are currently regulated. Many states, such as Ohio, have amended their regulations to conform to these requirements. Thus, companies must analyze greenhouse gas emissions in connection with modifications and new permit applications and for Title V applicability. Ohio required Title V permit applications to be submitted not later than July 1, 2012, for greenhouse gas sources that would not otherwise be subject to Title V requirements. Ohio Adm. Code 3745-77-11.

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