Something in the Air at the EPA: The McGuireWoods 2016 Clean Air Act (P)review

February 17, 2016

Even in this election year, the Obama administration is moving forward with its Clean Air Act (CAA) agenda. While the Environmental Protection Agency’s (EPA’s) final Clean Air Act 111(d) rule for cutting greenhouse gas pollution from existing power plants – the Clean Power Plan – continues to make headlines as it wends its way through the courts, the EPA is moving forward on a number of other significant CAA regulations.

Below we provide a snapshot of these key stationary and mobile source regulations, along with the CAA enforcement initiatives that will guide agency action in 2016.

Clean Power Plan – Hot Off the Presses

On February 9, 2016, the U.S. Supreme Court, in a 5-4 decision, issued an order staying the EPA’s Clean Power Plan, effectively putting the rule on hold during the pendency of various legal challenges to it.

The stay represents a major setback to the Obama administration, which touted the rule as a bargaining chip in the talks leading to December’s Paris Climate Accord. If the Clean Power Plan does not survive judicial scrutiny, countries may seek to nullify or defect from the agreement.

Under the rule, states had until September 2016 to propose either an “emissions standards plan,” which assigns standards to generators, or a “state measures plan,” which can include a combination of enforceable emissions limits and additional programs − such as renewable energy and energy efficiency standards. The rule also allowed states to adopt regional emissions trading programs.

With the rule stayed, states need not submit those plans for now. But given that implementation of the plans was not expected until 2022, with final compliance by 2030, it remains possible that the Clean Power Plan may not be significantly derailed if ultimately upheld by the courts.

New Methane Rules for the Oil and Gas Industry

In August 2015, the Obama administration continued the push to reduce greenhouse gases when the EPA proposed the first federal regulations requiring the oil and gas industry to decrease methane emissions along with volatile organic compounds. The proposed rule includes methane and volatile organic compound standards for sources not covered by the 2012 Oil and Gas New Source Performance Standards, such as completions of hydraulically fractured oil wells, pneumatic pumps and fugitive emissions at well sites.

The comment period for the rule ended on November 17, 2015, and the EPA expects to publish the final rule in June 2016.

The rule is slated to take effect at a time when more and more exploration and production companies inch closer to insolvency – and when the price of gas remains well below $3.00 MMBtu and oil prices are at historic lows.

New Ozone Standard

On October 1, 2015, the EPA strengthened the National Ambient Air Quality Standards (NAAQS) for ground-level ozone to 70 parts per billion (ppb), down from the earlier 75 ppm standard. The EPA claims that the public benefit from the new ozone NAAQS will be between $2.9 billion and $5.9 billion per year.

The standards will result in corresponding changes to the Air Quality Index – an index calculated by the EPA to report daily air quality based on the presence of ground-level ozone, particulate matter, carbon monoxide and nitrogen dioxide. Moreover, the standards also may turn certain attainment areas into nonattainment areas, thereby impacting air permits and federal funding to states.

Because these standards affect a wide array of industries, pundits expect legal challenges to the new NAAQS for ground-level ozone.

The EPA also published proposed updates to the Cross State Air Pollution Rule. 80 Fed.Reg. 75706 (December 3, 2015). The updates would impose stricter controls on ozone season NOx emissions from power plants to assist downwind states in complying with the 2008 Ozone NAAQS.

The EPA estimates that the rule will provide up to $1.2 billion in health benefits to millions of Americans. Comments will be accepted until February 1, 2016, and a final rule is expected in August or September 2016.

An Attempt to Rescue Mercury and Air Toxics Standards

On February 16, 2012, the EPA published final air toxics standards for coal- and oil-fired electricity generating units. These standards became known as the Mercury Air Toxics Standards (MATS).

On June 29, 2015, the U.S. Supreme Court ruled that the EPA erred when it failed to consider the costs associated with MATS. The court directed the EPA to consider these costs. In response, the EPA proposed a supplemental finding in December 2015 that includes a consideration of costs.

The EPA concluded that the costs to comply are reasonable when weighed against the health hazards posed by air toxics, including mercury, released from power plants. The EPA projects that it will finalize the MATS rule in May 2016.

Given the EPA-estimated MATS compliance cost of $8.1 billion in 2020, we expect additional legal challenges to the rule.

EPA’s National Enforcement Initiatives for CAA Stationary Sources

Every three years, EPA sets national enforcement initiatives to focus civil and criminal compliance and enforcement resources and expertise on serious pollution problems affecting communities. The initiatives are chosen with input from the public and state, local and tribal agency partners.

The current national enforcement initiatives for FY 2014-2016 include two air-specific initiatives. First, the EPA is focused on reducing air pollution from the largest sources. To that end, the EPA plans to take action to eliminate or minimize emissions from coal-fired power plants, cement plants, glass plants and acid plants. Second, the EPA has committed to cutting hazardous air pollutants. And thus, the EPA plans to target and reduce illegal emissions of toxic air pollutants from leaks and flares, as well as target and reduce excess emissions at facilities that have a significant impact on air quality and health in communities.

Volkswagen Emissions Enforcement

The EPA’s Notice of Violation (NOV) to Volkswagen drew international headlines in September 2015, as the agency alleged that the automaker had installed “defeat devices” in its diesel cars that would allow vehicles to pass emissions tests by temporarily engaging control devices during the tests, but bypassing the devices during regular use. Actual road emissions of nitrous oxides on various models were said to be 30 to 40 times higher than permissible.

On January 4, 2016, the United States Department of Justice and the EPA filed a complaint in the Eastern District of Michigan accusing Volkswagen of violating multiple provisions of the Clean Air Act, including the section 203(a)(3)(b) prohibition on devices that circumvent EPA testing. Volkswagen faces fines for each vehicle sold, in some cases up to $37,500 per violation, amounting to over $20 billion in potential penalties.

Volkswagen also faces class-action lawsuits from vehicle owners and is required to submit a recall plan to the California Air Resources Board (CARB) and the EPA under section 207(c)(1) of the Clean Air Act. CARB has formally rejected Volkswagen’s initial recall plan for 2.0 liter models over concerns that it lacked sufficient technical information. Volkswagen submitted its recall plan for the 3.0 liter models to CARB on February 2, 2016, and both plans will continue to be scrutinized as they are revised and implemented in the coming year.

For others in the auto industry, the Volkswagen enforcement actions are an indication of what heightened enforcement of mobile source emissions standards may look like. The EPA has pledged to increase oversight of mobile source emissions and testing, which may include increased on-road testing. Automakers can expect to see longer, more invasive testing as the EPA makes the detection of defeat devices and vehicle emissions violations a priority. In early 2017, EPA’s Tier 3 emissions standards and gasoline sulfur requirements will take effect, adding reduced emissions requirements to an industry expected to see increased enforcement.

Renewable Fuel Standard

Last year, the EPA announced long-awaited updates to the Renewable Fuel Standards (RFS2), letting the petroleum and biofuels industries know of the renewable fuel requirements they would be expected to achieve in coming years. The RFS2 program, established by Congress in 2007, required the EPA to set Renewable Volume Obligations (RVOs) that required refiners and importers to certify that their fuel contains a specified volume of renewable fuels.

After facing lawsuits from the petroleum industry for failing to set RVOs in accordance with statutorily mandated timelines, the EPA agreed in a consent decree to a revised timeline for the proposal and finalization of the RVOs. Pursuant to the consent decree, on November 30, 2015, the EPA issued a final rule setting RVOs for 2014-2016 and the biomass-based diesel volume standard for 2017.

The rule, effective February 12, 2016, provides much-needed certainty regarding the RFS and related reporting deadlines, as well as predictability regarding the volume of renewable fuel expected in the next two years. The new RVOs assume growth in cellulosic biofuels and advanced biofuels beyond current supply, emphasizing the EPA’s assumption that increased research, development and production in the renewable fuels arena will occur. However, the RVOs fall short of the 2007 statutory goals, which the EPA describes as “impossible to achieve” due to slower-than-expected development and marketplace constraints. 80 Fed. Reg. 77420, 77422.

Energy Policy Modernization Act of 2015

Congress is considering the first major energy bill since 2007, the Energy Policy Modernization Act of 2015, which focuses on bipartisan energy policy priorities such as energy efficiency, energy security and increased coal alternatives such as natural gas, hydropower and geothermal energy. Although the Vehicle Innovation Act of 2015 portion of the draft bill authorizes appropriations for research and development on vehicle efficiency and alternative fuel sources, it does not make changes to mandatory obligations affecting mobile sources.