Victor Flatt on CPRBlog {Bio}
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EPA’s ability to regulate cross-state pollution unnecessarily at stake: SCOTUS should uphold transport rule

Earlier this week, the Supreme Court heard oral argument in EME Homer City Generation v. EPA.  At issue in the case was the ability of EPA to regulate cross-state pollution, or pollution generated in some states that is carried over to others downwind. Eight “downwind” states, primarily in the Northeast, filed a brief in support of the Court’s review of a previous decision by the D.C. Circuit Court of Appeals, which struck down the rule EPA implemented to regulate cross-state pollution.

The rule stems from the “Good Neighbor” provisions of the Clean Air Act, which calls on EPA’s good judgment to address the issue of one state unfairly polluting another. More than 90% of ozone levels in Connecticut stem from out of state pollution sources, contributing to the soaring levels of asthma and respiratory illness in the area. In order to mitigate this kind of pollution from other states, the EPA devised a cost-based system to determine what kind of plan an upwind state must implement in order to reduce pollution when the state has inadequately created its own plan to limit its pollution in other states, also known as the transport rule.  Upwind states, industry and labor groups argue that the federal government is inappropriately inserting itself into a decidedly state issue when the federal government does not have adequate information to assign pollution-reduction plans.

Most reports of the oral arguments interpret a favorable stance from the Justices towards the EPA’s cost and science-based approach to regulate what it describes itself as a “dense spaghetti-like matrix.”  However, and as I’ve discussed in this space before, the procedural questions about whether the D.C. Circuit should have reviewed the transport rule in the first place, largely escaped the attention of the Justices even though the issue was briefed.  

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Downwind States Deserve Protection: Supreme Court’s Review of Decision Gutting Cross-State Pollution Protections Right on Point

Last month, the U.S. Supreme Court granted certiorari, or review of  EME Homer City Generation v. EPA, 696 F.3d 7 (D.C. Cir. 2012), reh’g en banc denied, 2013 WL 656247 (D.C. Cir. Jan. 24, 2013). This is a welcome development, as the D.C. Circuit Court of Appeals got many things wrong in its tossing out of the Cross State Air Pollution Rule (CSPAR), the follow-up to the previously invalidated Clean Air Interstate Rule (CAIR) which regulated potential cross-state air pollution. For example, although an oil refinery one state may meet its own air quality, but not in state nearby where it might be polluting neighboring cities. CSPAR would hold states accountable for their pollution of their neighbors, which the D.C. Circuit Court of Appeals tossed out last year.

This case was brought to the D.C. Circuit on consolidated challenges to the EPA’s attempt to implement the CSPAR. Basically, the rule and its pieces and subsidiaries were designed to ensure that the states did not cause significant “interference” with “maintenance” of National Ambient Air Quality Standards (NAAQS) in downwind states. (This has also been referred to as the “good neighbor provision,” or Section 110(a)(2)(D) of the Clean Air Act). The problem of interstate transport of major air pollutants has become more apparent over the last 15 years, and it has become obvious that many states will never be able to meet the safe levels of air pollution within their own borders without controlling the pollution from other states, which the EPA is required to do. The complexity of the issue and whether and how the EPA will deal with it has been the subject of litigation since 1998. This rulemaking was the culmination of an attempt to create a systematic approach to dealing with the problem.

The Court of Appeals held for some of the plaintiff states and industry and overturned CSAPR because: 1) it claimed that the EPA’s plan improperly failed to reduce only an upwind state’s share of contributions to a downwind state’s nonattainment; and 2) the EPA erred in simultaneously implementing a Federal Implementation Plan (“FIP”) instead of allowing the states to first propose a State Implementation Plan or SIP that would reduce the EPA-determined significant contribution to downwind states.

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Obama Administration Withdrawing EPA Ozone Standard an Illegal and Immoral Move

Today’s decision of the Obama administration to withdraw new ozone rules is not only bad policy, it is also illegal. The Clean Air Act requires the EPA to revisit its National Ambient Air Quality Standards (NAAQS) every five years to ensure that they are adequate to protect the public health and safety. In 2006, the Bush Administration revisited the rules as required, but proposed a new standard of .75 P.P.M., which was far above the unanimous recommendations of the scientists who said somewhere between .60 and .70 P.P.M. was necessary to protect the public health. A lawsuit followed, and in response the Obama administration re-opened the rulemaking. This delayed a legal decision which most assuredly would have over-turned the 2008 final rules.

The Obama EPA proposed the more rigorous standards that could be supported by the science of 2006. In truth, new evidence suggests that the .60 to .70 limit itself may be too lenient, and that tens of thousands of people every year face premature deaths due to ozone.

Now, the Obama administration, noting that the standards will be revisited again in 2013, after the election, has withdrawn the rulemaking, in the name of regulatory relief.

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Texas is Arguing that EPA Acted Faster than It's Allowed in Air Permitting Move. Texas is Wrong.

On Dec. 30, the EPA announced that it was partially disapproving the Texas State Implementation Plan (SIP) that would not allow it to issue PSD permits for greenhouse gases that were now “subject to regulation.” Continuing its resistance to all things EPA, Texas filed a request for an emergency stay of the disapproval in the DC Circuit. This follows Texas’s request for an emergency stay on the rulemaking which declared GHGs subject to regulation under PSD in the DC Circuit, and later in the Fifth Circuit, both of which were denied.

This time, however, perhaps because it was a holiday, the DC Circuit (without ruling on the merits) entered a temporary stay until the issue could be considered more fully today, January 6. Texas and its supporters are arguing that the EPA should get reversed on this one because it might have violated procedural notice and comment requirements under the CAA in acting so quickly. But this is not the case, as the EPA has followed all relevant procedural requirements necessary for implementing a partial Federal Implementation Plan (FIP) in the face of the inadequacy’s of Texas State Implementation Plan (SIP) as it applies to greenhouse gases now “subject to regulation.”

The modern Clean Air Act is a federal creation based on Congress’s commerce clause power. The federal government’s ability to preempt state action in the area has been upheld on several occasions.   The Clean Air Act does have a dual federalism model which recognizes that the states can have a role to play in implementation. Specifically, the CAA allows states to have an opportunity to implement CAA requirements within the state’s borders (CAA Sec. 110).

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Welcome Clarity and Few Surprises in EPA's Guidance on Greenhouse Gas Permitting

Last week the EPA released its “PSD and Title V Permitting Guidance For Greenhouse Gases.” This Guidance was designed to give the states direction in how to implement permitting requirements for new sources for other criteria pollutants that also produce greenhouse gases on January 2, 2011, and new sources of greenhouse gases following in May, 2011, under the Clean Air Act’s Prevention of Significant Deterioration Program.

The Guidance does an excellent job of summarizing and explaining how the EPA’s current PSD permitting program works (it is the best succinct and correct explanation I have seen), and explains how the procedure applies with the addition of greenhouse gases to the list. Importantly, it reaffirms the current five-step standard for determining what is “Best Available Control Technology” under the PSD program. The Guidance first advises permitting authorities in making an applicability determination based on whether there is an emissions increase under the complex regulatory formulae (and subject to the de minimis current requirements and the new ones for greenhouse gases). Then the Guidance moves on to the five-step process, which requires the permitting authority to evaluate what the best processes are for reduction, rank them in order, then evaluate them one by one for excessive environment, energy, or economic cost until one is deemed sufficient to implement for the BACT.

The Guidance goes on to suggest that energy efficiency is certainly likely to be the most promising BACT for most greenhouse gas producers. The EPA suggests that permitting authorities who require energy efficiency initiatives look at design features as well as end-of-pipe requirements, and favorably comments on more efficient boiler designs such as boilers with supercritical and ultra-supercritical steam pressures. Importantly, the agency does not endorse fuel switching as a BACT for coal fired power plants, though neither does it rule it out, leaving the possibility open for states to require it.

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Tailoring Rule Draws Multiple Challenges

Cross-posted from Flatt Out Environmental.

As expected, the EPA's "tailoring rule," under which it proposes to regulate stationary sources of greenhouse gases under the Clean Air Act (CAA) only if they produce over 75,000 tons of carbon dioxide equivalent forcing per year, has been challenged in court by numerous organizations. These include industry, several states (the usual suspects including Texas), and more surprisingly several environmental organizations.

The crux of industry and state challenges to the tailoring rule is that it is illegal pure and simple. Specifically, the challenges note that the CAA requires that when the EPA regulates stationary sources under the CAA, that it do so for sources that emit over either 100 or 250 tons per year. Of course, industry doesn't really want all of these smaller sources regulated, but they want to make it virtually impossible for EPA to regulate at all. If the EPA had to regulate all of these small sources, regulation would be virtually impossible. (EPA's primary argument for the legality of the tailoring rule is a doctrine known as "administrative impossibility"). Even if the EPA tried to, Congress would surely take action then to suspend the regulation (something that it has not been able to do so far, though several Senators have tried).

The environmental organizations take the other tack, claiming that while they don't oppose "tailoring" out small sources, that the level is not small enough. (They prefer 25,000 tons per year).

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EPA Threads the Needle with New CAIR Rule

On Tuesday, the EPA released its long awaited rule to replace the Bush era Clean Air Interstate Rule, invalidated by the DC Circuit in 2008’s North Carolina v. EPA. There are many things that could have been different or improved, but given the EPA’s need to get a rule out quickly to replace the existing rule, they have done a good job of addressing the flaws of the earlier rule and getting something in place.

The main problem with the previous CAIR was that in allowing full interstate trading of SOx and NOx, it was in violation of the CAA requirements in Section 110, that a state’s State Implementation Plan ensure that no other state’s attainment and maintenance is violated, and Section 126, which requires the EPA and states to control individual sources that cause a violation in another state.

In the new Rule, the EPA allows full intra-state trading of the pollutants, but limits interstate trading in such a way as to ensure that no one state gets stuck with increasingly localized pollutants. This means that states do not have to worry that the trades will end up concentrating the pollution in such a way as to continue to cause their state SIPs to be violated. While we can’t be sure that this rule will be upheld, I believe that it addresses the major flaw in the earlier case. The court has previously allowed the EPA to set control requirements based on marginal cost of control, so that should not be a problem either.

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Texas' Clean Air Act Alamo May Win the Environmental War for us All

In the little-followed but hugely important “joint federalism” system through which our environmental laws are implemented, a seismic change may be afoot that could vastly improve environmental compliance and environmental quality in the future.

Last week, Al Armendariz, the head of the Environmental Protection Agency’s Region VI, indicated that unless significant changes are made by July 1, 2010, the EPA will take over Texas’s Clean Air Act program because of failures to follow the requirements of the Clean Air Act. The EPA last week already took control of an important Title V permit in Corpus Christi, and noted specific and severe deficiencies in 39 other Texas permits, indicating that it would take over them as well. This is significant in and of itself since it shows that the EPA is willing to use its over-filing powers as much as necessary to try and correct permit problems in a state air program. But setting a specific date to take over the entire state Clean Air Program is unprecedented.

A general reading of the CAA would not indicate that this is such a big deal. In fact the CAA specifically notes that if a state fails to follow the minimum federal requirements necessary in its state implementation plan (SIP) for the CAA, the federal government must implement a Federal Implementation Plan, and can also take control of all of the CAA program. This was designed as a failsafe to ensure that the states met the minimum standard that the CAA required. But  it quickly became apparent that the EPA didn’t have the resources to follow through on such threats, and since the 1980s, the EPA has instead relied on cajoling and occasional permit disapprovals to try and bring state programs into line. But Texas' behavior with respect to the CAA has been so outrageous that it may have finally forced the EPA’s hand. Starting in the 1990s, the Texas Commission on Environmental Quality (TCEQ) has allowed “flexible” permits in violation of EPA’s recommendation.   These permits allow plants to make significant changes in pollution sources within a facility if the overall pollution doesn’t exceed a certain level.   The problem was that it masked some efficiency upgrades which would require new pollution control equipment and made general monitoring more difficult. Data last year showed that many of these plants were already exceeding their permits by 100 percent.

Though it has taken the EPA more than 14 years (!) to formally disapprove this part of Texas’s SIP, the EPA has indicated for years, from the Clinton through the Bush administration, that this part of the Texas program violates basic provisions of the CAA. But Texas refused to budge.  Instead, it did everything it could to hold onto and do whatever it wished with its air program.

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Don't Blame Tony Hayward: Why We Need Laws and Regulations That Specifically Hold Parties Liable for the Harm They Cause

BP CEO Tony Hayward has been careful to say his company will pay for the "clean-up" from the oil spill -- meaning, not the damages. But if past disasters are any guide, the clean-up will be just a small fraction of the damages from the spill (the deaths, the damage of the oil to natural resources and the humans that depend on them, and more). Many media have commented that Hawyard is a “jerk”, but the who-pays-for-the-damages problem isn't really about Hayward and BP. Rather, it points out a weakness with our health and safety laws not unique to this case – they do not always demand and require that industry pay for the harm it causes society.

Hayward, in fact, has been answering in the only way that he legally can while still representing the shareholders of the corporation. Why? The law (specifically the Oil Pollution Act, passed after Exxon-Valdez) requires BP to “clean up” the oil spill itself, but caps economic damages at $75 million.   What if BP decided it wanted to pay all of the damages, though? Corporate law, which defines the fiduciary responsibility of a Corporate Board as maximizing shareholder profit, would forbid the managers of BP from voluntarily offering to pay more than the law required (unless they could show that their public image would be so improved as to justify the cost). Doing so would risk shareholder derivative suits (which the company will likely face in any event).

I'd be happy to change the rules governing corporate responsibility, but a far easier solution would be to stop subsidizing the private interest at cost to the public. Because that is what liability caps and myriad other federal and state laws do.

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Preemption Aside, New Climate Change Proposal Would Create Generally Similar Results as Prior Proposals (But Watch Out for Those Offsets)

While Kerry and Lieberman (and before two weeks ago, Graham) have tried to pitch the proposed new Senate climate and energy draft legislation as a “game-changer” the truth is that, aside from the stronger preemption language limiting the states, its effect is not terribly different from what has come before. Sure, there are sweeteners for the conservascenti, such as enhanced loan guarantees and permit streamlining for nuclear energy, continued support for carbon capture and sequestration, removal of a natural gas “penalty,” and ostensibly an opening up of now closed offshore oil areas. But whether this would be different than what would have happened by adoption of the ACES bill is questionable.

ACES also allowed the coal industry to continue with the help of monetary support of carbon capture and sequestration. As for increased offshore oil drilling, even with revenue sharing, opening new areas is going to be a hard sell for a long, long time.  Alaska is a possible exception here, and the Alaska offshore revenue sharing provisions are clearly designed to get the Begich and Murkoswki vote. But even if offshore oil drilling is more attractive to Alaskans, the bottom line is that Alaska always wants to drill and the only thing stopping it has been the federal environmental reviews. The Deepwater Horizon spill called the prior MMS analysis of Alaska offshore drilling into question and has spurred another lawsuit.

The Kerry-Lieberman bill creates the very peculiar “linked” fee system for the oil and gas industry as a way to pay for their carbon intensity usage. While this is a strange and overly complicated part of the proposal and may be a boondoggle to the oil and gas industry, its ultimate effect on actual greenhouse gas reductions should be minimal.

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