Reading the Tea Leaves: Obama EPA’s Granting of Sierra Club Petition to Reconsider Regulation of CO2 Under the Clean Air Act

February 23, 2009

On February 17th, new EPA Administrator Lisa Jackson agreed to reconsider EPA’s long-standing position that carbon dioxide (CO2) and other green house gases (GHG) are not currently “subject to regulation” under the Clean Air Act (CAA). The announcement came in a letter granting a Sierra Club petition for reconsideration of the Bush EPA’s December 18, 2008 interpretive rule, known as the Johnson Memo, which formally articulated this policy. With over a hundred pending permits at immediate risk and the hot-button issues of coal and climate change as a backdrop, EPA’s docket for reconsideration will undoubtedly be flooded with public comment.

The issue of whether GHG regulation is currently required under the New Source Review provisions of the CAA has been hotly contested by power plant developers and environmental groups in the Deseret Power case and other CAA permit proceedings across the country. On November 13, 2008, in the Deseret Power case, EPA’s Environmental Appeals Board (EAB) determined that the CAA is ambiguous on the question of whether CAA construction permits must address GHGs and remanded the permit back to EPA for a definitive agency interpretation. See McGuireWoods’ client alerts of 11/19/08 and 1/5/09. The Bush EPA responded to the Deseret Power decision swiftly, on December 18, 2008, with the Johnson Memo. Nonetheless, last week, the EAB remanded another power plant permit, citing Deseret Power and holding that the permit record in that case did not sufficiently address the question of whether GHGs must be addressed in construction permits under the CAA. In re: Northern Michigan University Ripley Heating Plant (February 18, 2009).

If the Obama EPA concludes, in the announced docket for reconsideration, that GHGs are subject to regulation under the Act, the immediate impact would be to require New Source Review (NSR) permitting and application of Best Available Control Technology (BACT) to new facilities and major modifications of existing facilities. Since quantities of GHG emissions tend to be much higher than other pollutants, application of NSR permitting for GHGs would be expected to be very widespread and to encompass many types and sizes of facilities not currently subject to CAA permitting. Sierra Club spokespersons believe EPA can avoid sweeping thousands of small facilities into permitting by raising the “major source” applicability thresholds for GHGs to 25,000 tons per year. But as a legal matter, it’s questionable whether EPA has the authority to alter the CAA’s statutory applicability thresholds, thus an amendment to the CAA would be required to avoid the predicted “permitting nightmare.”

The Sierra Club is touting Administrator Jackson’s announcement as a signal that the new Obama EPA will reverse the Agency’s long-standing interpretation and begin applying NSR BACT requirements for GHGs in permit proceedings within as little as the next six months. The Club characterizes the EAB’s remand in Northern Michigan University as a response to the Jackson’s decision, just the day before, to grant reconsideration. This analysis is a mix of hyperbole and wishful thinking. The EAB’s decisions to remand in both Deseret Power and Northern Michigan University were based on standard administrative law principles — the insufficiency of the permitting records before the EAB. Obviously, in neither case did the EAB have before it a record that considered the Johnson Memo which was just issued in December 2008. Nor did either record include a discussion of the extensive consideration EPA gave to this question in its Advanced Notice of Proposed Rulemaking published in July 2008 and the many public comments that were filed in that docket.

EPA’s granting of Sierra Club’s motion to reconsider the Johnson Memo was expected by most observers. The Johnson Memo was adopted in the last month of the Bush Administration without public notice and comment, and thereafter was immediately challenged on a procedural basis, both before the Agency and in the D.C. Circuit Court of Appeals. Environmental groups, as well as prominent politicians, characterized it as an effort to circumvent public input and to tie the hands of the incoming Obama administration. Thus, it is not surprising that the new administration would open a docket both to address the procedural controversy and to maintain control of the issue.

But contrary to Sierra Club’s contention, EPA’s reconsideration does not necessarily portend a reversal EPA’s long-standing position on GHG regulation under the CAA. A review of the February 17th letter, together with some of Administrator Jackson’s recent statements, indicate that the Agency is likely to take a more cautious approach.

First, EPA is under court order to make an “endangerment” determination with respect to GHGs, and is widely expected to make an affirmative determination, which would start a process of regulation of GHGs under the Act. Jackson recently said she understood the profound implications of that decision, and committed to laying out “a road map” as to how such regulation would proceed. Hence, one might expect EPA to effectively coordinate the NSR reconsideration issue with the endangerment issue, and proceed openly and deliberately to begin more comprehensive regulation of GHGs under the Act.

Second, in the February 17th letter Jackson declined to stay the Johnson Memo pending EPA’s reconsideration. This indicates that EPA recognizes that staying the memo could have immediate adverse impacts, including re-opening the debate created by the Deseret Power decision and threatening grid-lock in an estimated 100 pending state and federal permit proceedings.

The letter cautions permitting authorities that they “should not assume that the memorandum is the final word on the appropriate interpretation of Clean Air Act requirements.” This statement appears to be a nod to the Sierra Club, which had been vigorously lobbying EPA for a stay. EPA’s warning gives Sierra Club the room to argue that pending Clean Air Act permit proceedings should be put on hold until EPA completes its reconsideration. But the fact that EPA chose not to stay the Johnson Memo should be the controlling consideration for permitting authorities and the EAB. Since Jackson chose not to stay the Johnson Memo, that memo remains the applicable EPA interpretation at this time. Moreover, neither permitting authorities nor the EAB have the legal authority to simply hold CAA permitting in abeyance while EPA undertakes reconsideration of its policies.

The Jackson letter announces that EPA will be initiating the reconsideration process by publishing a notice of proposed rulemaking in the near future. The stated intent is to allow public notice and comment on the issues raised in the Johnson Memo as well as the issues raised in the EAB’s Deseret Power decision which spurred the memo. The Administrator stated publicly that EPA is seeking a “fair, impartial and open process that will allow the American public and key stakeholders to review this memorandum and to comment on its potential effects on communities across the country.”

If we are reading the tea leaves correctly, Administrator Jackson’s letter and statements do not signal that the Obama administration is planning to abruptly apply ill-suited provisions of the CAA to a myriad of GHG emission sources. Rather, in opening a docket for reconsideration of the Johnson Memo, the new EPA has taken the prudent step, politically, legally and substantively. In light of the controversy surrounding the memo and the significance of the underlying question of GHG regulation, Jackson had little choice but to grant reconsideration as a political matter. As a legal matter, to reconsider the interpretation formally pronounced in the Johnson Memo, she had to open a formal notice and comment rulemaking docket. Yet, by refusing to stay the interpretive rule, she has shown EPA intends to move cautiously. She has also avoided what could be a devastating political backlash from regulated industries. Also, as a result of EPA’s agreement to reconsider the Johnson Memo, the environmental groups agreed to dismiss their appeal in the D.C. Circuit Court of Appeals. Thus, Jackson has saved EPA resources, avoided a possible judicial finding that Johnson’s interpretive rule was procedurally defective, maintained the status quo, and retained EPA’s ability to control the “roll out” of GHG regulation under the Act.

Notwithstanding our view that Administrator Jackson’s action was expected and prudent, the regulated community should pay attention to this issue. Project developers, as well as operators of large and small industrial and commercial facilities, could be affected by the policy EPA ultimately adopts in this reconsideration docket. If EPA is going to seriously pursue regulation of GHGs under the CAA , it should not begin with the ad hoc application of GHG emission limits and control technology requirements in thousands of case-by-case NSR permit proceedings. Rather, EPA should act deliberatively to chart the “roadmap” Administrator Jackson promised in her Confirmation Hearing, dovetailing EPA rulemaking with Congressional efforts to prescribe a comprehensive strategy to address climate change.

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