Year in Preview: 2015 Heralds Big Changes Under the Clean Air Act

February 10, 2015

The Environmental Protection Agency (EPA) has a robust Clean Air Act agenda for 2015.

Not only has a new interstate pollution and allowance trading regime kicked in (effective Jan. 1), but the agency has announced that it will publish final carbon standards this summer for new and existing power plants and embark on an aggressive strategy to reduce methane emissions. Meanwhile, the agency continues to face a number of key challenges to its Clean Air Act regulations, including a case headed for the U.S. Supreme Court challenging the Mercury and Air Toxics Standard (MATS). States and facilities will be gearing up to meet the newly proposed National Ambient Air Quality Standards (NAAQS) for ozone while also trying to anticipate the mix of voluntary and regulatory programs the EPA will pursue under its recently announced methane reduction initiative.

The agency’s Clean Air Act efforts are not confined to stationary sources only. Indeed, after failing to finalize the 2014 renewable volume obligation (RVO) under the Renewable Fuels Standards (RFS) program, the agency has pledged to finalize this year the RVOs for 2014, 2015 and 2016. This is a tall order, particularly at a time when falling crude oil prices have stolen some of the energy security urgency underlying the RFS program.

Here we preview some of the EPA’s Clean Air Act efforts in 2015.

Cross State Air Pollution

There is a new air program in town. Effective Jan. 1, 2015, the Clean Air Interstate Rule (CAIR) no longer applies and the Cross State Air Pollution Rule (CSAPR) is the law of the land.

Over the years, the EPA has established a number of federal air emissions trading programs for SO2 and NOx under the Clean Air Act. These programs are based on pollutant allowances that authorize a source to emit a specific amount of a particular pollutant during a given year. With some exceptions, at the end of each year, the source must hold an amount of allowances at least equal to the source’s actual, annual emissions of the specified pollutant. Allowances are marketable and can be bought and traded, and excess allowances (over those equal to the source’s emissions) are traditionally sold (traded) or banked for future use by the source.

CSAPR was adopted in 2011 but underwent protracted legal challenges, culminating last year when the U.S. Supreme Court upheld the rule and the District Court lifted the stay on CSAPR’s implementation. As a result of these rulings, the EPA issued a ministerial rule in November 2014 resetting CSAPR’s implementation dates, with Phase 1 effective Jan. 1, 2015, and Phase 2 effective Jan. 1, 2017. While CSAPR will replace CAIR, it will not replace the Title IV Acid Rain Program.

Now that CSAPR is implemented, only allowances created or banked under CSAPR may be used to meet the requirements of that rule. Allowances created or banked under CAIR or the Acid Rain program will not be permitted to be applied or traded under CSAPR.

The EPA is conducting state outreach to address the practicalities of CSAPR implementation. Additional federal and state rulemakings and guidance are expected in the coming weeks and months. States will need to incorporate the new CSAPR requirements into their permitting programs and any applicable trading programs.

EPA Proposed Ozone Standard Rule

The EPA published a proposed rule on Dec. 17, 2014, by which the agency intends to modify the national ambient air quality standards (NAAQS) for ground-level ozone. The Clean Air Act requires NAAQS to be updated every five years and the ozone standard was last updated in 2008. As a result, the EPA is now under a court order to complete the revision by October 2015.

In its proposal, the EPA has said it is considering lowering the standard from the current 75 ppb to somewhere between 65 and 70 ppb. It has also invited the public to comment on a standard as low as 60 ppb; however, the expectation is that it will finalize the rule using the 70 ppb standard.

While the EPA is prohibited from using costs as a factor in setting NAAQS, the agency estimates the cost of compliance with a 70 ppb standard would be $3.9 billion annually using 2025 as the future baseline year in which all states other than California would be in compliance with the standard. The agency’s estimate of public health benefits at the 70 ppb standard are from $6.4 to $13 billion annually.

Not surprisingly, public interest groups say the health benefit calculations are too low and industry groups claim that the cost estimates are too high, with the former pushing for a 60 ppb standard and the latter group pushing for the standard to remain at the current 75 ppb.

The industry groups have the support of the Republican-controlled Congress, where Republicans have pledged to reintroduce and advance legislation in the next session to block EPA from moving forward with the revised standard. The Clean Air, Strong Economies Act (S. 2833, H.R. 5505) would block revisions to the current 75 ppb standard until 85 percent of current nonattainment counties comply with the existing standard.

States bear the burden of implementing any new standard and would need to revise their state implementation plans accordingly. However, because of other EPA initiatives, such as CSAPR and the Clean Power Plan, many states will be revising implementation plans anyway, so the incremental burden may not be too great. Two things can be predicted with a fair degree of certainty: first, that the EPA is likely to miss the Oct. 1 deadline based on its past regulatory deadline performance; and second, that when it does issue a rule, litigation is sure to follow.

Clean Power Plan

In an ordinary year, EPA’s changes to pollution allowance trading and the ozone NAAQS would be news enough. But this year, those changes take a back seat to EPA’s planned summer 2015 release of final carbon standards for new and existing power plants under Clean Air Act sections 111(b) and 111(d).

EPA issued its new plant proposal in September 2013 and its existing plant proposal in June 2014. The proposed rules received some 2 million comments each, causing pundits to react with skepticism to the agency’s January 2015 announcement that it intends to finalize both this summer and to issue a proposed federal implementation plan as a guide for states.

The new power plant proposal is straightforward, if controversial. It creates essentially two standards: one for natural gas and one for coal plants. While the two standards, expressed as pounds of CO2/MWh (around 1,000 – 1,100 pounds/MWh), are nearly identical, it is widely expected that the rule will virtually preclude construction of new coal power plants in this country, given the expense of the control technology, carbon capture and sequestration (CCS), which are required to meet the standard for coal plants.

The 111(d) proposal for existing plants, however, is more complicated – and more controversial. It would, in essence, target carbon emissions rates for each state, and allow states to meet those rates through a combination of tools: (1) requiring fossil fuel power plants to be more efficient, (2) using more low-emitting natural gas combined cycle plants where excess capacity is available, (3) increasing use of renewables and nuclear power, and (4) reducing electricity demand.

EPA has assessed the cost of complying with the existing source rule at $7.3 billion to $8.8 billion by 2030, resulting in an estimated 3 percent increase in electricity rates. The agency also projects that the rule will deliver $55 billion to $93 billion in public health benefits.

Litigation on the proposed rule is already underway, with more suits likely to be filed once the final rule is issued this summer. Ironically, the very flexibility that the proposed rule affords states to meet emissions targets may be its Achilles’ heel; industry pundits have already cast doubt on the agency’s ability under the Clean Air Act to require beyond-the-fenceline adjustments in states that fail to adopt conforming implementation plans.

Meanwhile, certain members of the Republican-controlled Congress are threatening to pass legislation that would limit EPA’s ability to implement any new rulemaking.

Mercury and Air Toxics Standards

Last November, the Supreme Court granted certiorari on an industry challenge to EPA’s 2012 Mercury and Air Toxics Standards (MATS), which set limits on residual emissions of mercury, other toxic metals and acid gases from coal- and oil-fired electric utilities.

EPA issued MATS under Clean Air Act section 112, which requires the agency to determine whether the imposition of new standards is “appropriate and reasonable,” but does not specifically require a cost-benefit analysis before deciding to regulate.

Industry has challenged the standards which, at an annual compliance cost of $9.6 billion, are among the most expensive environmental rules ever promulgated. Industry claims that EPA erred by failing to consider costs when determining that the standards are “appropriate and reasonable.”

In agreeing to hear the challenge, the Supreme Court has limited its review to a single question: “Whether EPA’s interpretation of “appropriate” in 42 U.S.C. § 7412(n)(1)(A) is unreasonable because it refused to consider a key factor (costs) when determining whether it is appropriate to regulate hazardous air pollutants emitted by electric utilities.”

Pundits agree that if the high court determines that EPA erred in not considering costs, the future of MATS – and other potential rulemakings – is in doubt. EPA’s own estimates of the value of MATS’ health benefits do not exceed the projected annual costs.

Reducing Methane from the Oil and Gas Industry

In January 2015, the EPA announced it would be taking a series of actions designed to reduce methane emissions from oil and gas extraction, processing and transmission by 40 to 45 percent, from a 2012 baseline, by 2025.

To achieve this ambitious goal, EPA plans to utilize a multifaceted approach, with regulatory and voluntary programs, coupled with advances in emissions monitoring and modeling.

The agency does not specify which sources it intends to tackle first. It seems likely, however, that the focus will shift from well sites to processing and transmission facilities, given the recent promulgation of new source performance standards for well sites. These standards require producers to utilize green completions and low-bleed pneumatics to achieve significant VOC – and, hence, methane reductions at well sites.

To complement the EPA’s efforts, the Bureau of Land Management (BLM) has agreed to issue concomitant regulations governing flares and leaks at well sites located on federal lands.

Again, given increasing resource constraints at the EPA, it is unclear how quickly the agency will act on this strategy.

Renewable Fuel Standard Program

Congress established the Renewable Fuel Standard (RFS) program in 2007 to promote energy security by increasing the percentage of renewable fuels used in transportation. The RFS program works by imposing an annual obligation on refiners and importers of fossil transportation fuels to include an increasing percentage of renewable fuel in the overall production.

This obligation, known as the Renewable Volume Obligation (RVO), is the cornerstone of RFS. Refiners and importers must annually certify that they met their RVOs by either physically blending the required amount of renewable fuel or by purchasing and retiring “renewable information numbers” (RINs), which are renewable fuel credits that are bundled with renewable fuels meeting certain requirements.

In November 2014, the EPA announced it was withdrawing the proposed 2014 RVO, which would have resulted in a reduction in the total RVO. In announcing the pullback, the EPA indicated it intended this year to reset the RVO process and issue final RVOs for 2014, 2015 and 2016.

While the renewable fuel industry is hopeful that the withdrawal will ultimately result in the 2014 RVO being set at the actual level of production, RFS opponents see the agency’s failure as another reason to push for the program’s demise. The EPA’s failure has already prompted at least one lawsuit seeking prompt action by the agency to establish the 2014 RVO.

With increasing constraints on its resources and a bold Clean Air Act agenda generally, no one is certain how quickly the agency can or will act. It is clear, however, that the failure to set an RVO has left refiners, importers and renewable fuel producers in a muddle and has introduced additional uncertainty into the renewable fuels market.

Clean Air Act Enforcement

The EPA’s Office of Enforcement and Compliance Assurance (OECA) will continue to pursue several national enforcement initiatives under the Clean Air Act:

  • Reducing emissions at “under-controlled coal-fired electric generating units, cement, acid, or glass plants” under the Clean Air Act’s New Source Review/Prevention of Significant Deterioration (NSR/PSD) program
  • Reducing leaks and flares of hazardous air pollutants under the NESHAPs, Title V, NSR/PSD and other programs, particularly at sites likely to have a public health impact, and as part of a multi-statute enforcement effort
  • Addressing noncompliance at onshore natural gas extraction and processing sites

The agency has had varying results under these initiatives, with the agency’s natural gas initiative receiving perhaps the least consistent enforcement efforts. The agency’s resource constraints have had a disparate impact on OECA, which has had to cut lean muscle, not fat, to achieve reduced funding levels. Thus, it seems likely that the agency will see a reduced level of Clean Air Act enforcement in 2015, compared with years past.