EPA Proposes Rules on Implementation of Permitting of Greenhouse Gas Sources Under the Prevention of Significant Deterioration Program

Overview

On August 12, 2010, the Environmental Protection Agency (EPA) released two proposed rules related to state and federal responsibilities for permitting sources of greenhouse gas (GHG) emissions under the Prevention of Significant Deterioration (PSD) provisions of the Clean Air Act (CAA). The first proposed rule would certify that thirteen states lack authority to apply PSD permits to GHG emissions under their previously-approved CAA implementation plans, and direct the states to submit revised versions of those plans to EPA or allow EPA to issue these permits directly under a Federal Implementation Plan (FIP). The second rulemaking contains the proposed FIP, under which EPA would take over responsibility for issuing PSD permits for GHG emissions in states that lack authority to do so.

As EPA announced in earlier rulemakings this year, the agency intends for PSD and Title V permitting of certain GHG sources to commence on January 2, 2011. The pair of rulemakings announced last week is an important step towards achieving that goal. In addition, the rulemakings raise the possibility that some states may temporarily lose authority to issue PSD permits for GHG emissions pending the submission of revised implementation plans. According to EPA, such an outcome can be averted only if states voluntarily take action for EPA to take control of their PSD permitting programs for GHG emissions by January 2, 2011. Further, the two EPA rulemakings are significant because they indicate which states may have a federally-administered permitting process for GHG sources, and which states are likely to retain state authority to issue these permits.

Background

These rulemakings are the latest steps in EPA’s initiative to regulate GHG emissions using its existing authorities under the CAA, following the Supreme Court’s 2007 decision in Massachusetts v. EPA. As described in previous Issue Alerts, EPA has responded to the Massachusetts decision by finding that GHG emissions from mobile sources contribute to climate change that endangers public health and welfare, and by promulgating GHG emission standards for motor vehicles (for more information, see our December 9, 2009 and April 6, 2010 Issue Alerts). 

Because of the structure of the CAA, these actions also have implications for PSD permitting of stationary sources. Under the PSD program, major stationary sources that are either newly constructed or undergoing modifications that will cause a significant increase in emissions must obtain a preconstruction permit that, among other things, requires the installation of “best available control technology” (BACT) for every pollutant “subject to regulation” under the CAA. In an interpretive rule issued earlier this year, EPA determined that its GHG emission standards for motor vehicles will cause GHGs to become “subject to regulation” for purposes of both PSD and Title V permitting on January 2, 2011. A separate rule, known as the “Tailoring Rule,” established a phased timetable for implementing PSD and Title V permitting under which these requirements would apply first to very large sources of GHGs.

One question not fully addressed in the Tailoring Rule was the transition process for state and local authorities to adopt the federal GHG permitting requirements prior to the start of the GHG permitting program on January 2, 2011. Currently, PSD permits are issued under a variety of arrangements: in some jurisdictions, EPA processes permit applications and issues permits directly; in other jurisdictions, local authorities issue permits under delegated authority from EPA, and pursuant to federal regulations; and in many states, local authorities issue permits under State Implementation Plans (SIPs) that have been approved by EPA. However, in the Tailoring Rule, EPA raised the concern that some SIPs may not provide permitting authorities with adequate authority to carry out PSD and Title V permitting for GHG emissions as described in the Tailoring Rule (in many cases because the SIP applies only to a specified list of pollutants that omits GHGs).

Proposed Finding of Substantial Inadequacy

As a result of these concerns over state and local authority, EPA undertook a review of state law and consulted with permitting authorities to determine whether existing SIPs and state laws provide adequate legal authority to implement PSD permitting consistent with the Tailoring Rule. Based on this review, EPA proposed to find that thirteen permitting jurisdictions have SIPs that fail to provide such authority and are therefore “substantially inadequate” to meet CAA requirements. Upon making such a finding, Section 110 of the CAA authorizes EPA to establish a reasonable deadline for submitting an adequate SIP and, if necessary, assume state CAA responsibilities pursuant to a FIP until such time as an adequate SIP is filed and approved.

The thirteen jurisdictions for which EPA proposes a finding of substantial inadequacy are:

• Alaska
• Arizona (excluding Maricopa County, Pima County, and Indian Country)
• Arkansas
• California (Sacramento Air Quality Management District only)
• Connecticut
• Florida
• Idaho
• Kansas
• Kentucky
• Nebraska
• Nevada (Clark County only)
• Oregon
• Texas

In many of the above states, EPA determined that the terms of the SIP itself prevent permitting authorities from applying PSD requirements to GHG emissions; in several cases, however, EPA identified separate provisions of state law that apply to the SIP and preclude its application to GHGs. Under the proposed rule, each of the above jurisdictions would have up to 12 months to submit a revised SIP that provides requisite authority to issue PSD permits. If the jurisdiction fails to submit an adequate SIP by the deadline, however, EPA would immediately assume GHG permitting responsibilities within that jurisdiction through a FIP – the subject of its second proposed rule.

For the remaining jurisdictions not included in the above list, EPA did not propose to make a finding of substantial inadequacy. However, EPA’s proposal invites public comment on the issue. In the final rule, EPA may ultimately determine that additional states or regions within states lack authority to implement PSD permitting of GHG sources as provided in the Tailoring Rule.

Proposed Federal Implementation Plan

EPA’s proposed FIP for PSD permitting of GHG sources would be implemented in jurisdictions for which EPA has (1) issued a final finding of substantial inadequacy and (2) not received a revised SIP once the deadline for doing so has passed. EPA’s proposed FIP is virtually identical to its regulations for the PSD program (40 C.F.R. Part 52.21), except that the scope of the FIP is limited strictly to GHG emissions. These regulations have been amended to reflect the phase-in timetable and emission thresholds established under the Tailoring Rule. Currently, these PSD regulations apply in jurisdictions where EPA directly administers PSD permits or has delegated authority to do so to a local permitting authority.

Next Steps

Importantly, last week’s proposed rules do not address state and local authority to issue Title V permits. EPA’s proposed finding of substantial inadequacy observes that some jurisdictions may have SIPs that are also substantially inadequate with respect to Title V, and commits to address the issue in a separate rulemaking.

One critical question raised by the proposed findings of substantial inadequacy is whether some jurisdictions might lose authority to issue PSD permits to GHG sources for a period of time after January 2, 2011, if revised SIPs are not approved until after that date. Under the CAA, EPA is not permitted to implement a FIP for a jurisdiction until the agency (1) makes a final finding of substantial inadequacy and (2) allows the jurisdiction to submit a revised SIP within a “reasonable” deadline (not to exceed 18 months). Thus, if EPA requires revised SIPs to be submitted prior to January 2, 2011, the agency would have legal authority to implement a FIP on January 2, 2011 if the deadline is not met. However, if EPA establishes a twelve-month deadline as proposed, the agency would not have authority to implement a FIP until the deadline expires in late 2011 – creating a potentially months-long window in which GHG sources that trigger PSD requirements under the Tailoring Rule would be unable to obtain those permits from either the local permitting authority or EPA . Sources that would be affected include:

• Between January 2, 2011 and June 30, 2011: any source that (1) is subject to PSD as a result of its emissions of non-GHG pollutants and (2) will either have a potential to emit (if newly constructed) or an increase in emissions (if being modified) of at least 75,000 tons CO₂-e per year;
• Between July 1, 2011 and expiration of FIP deadline in late 2011: new sources with a potential to emit of at least 100,000 tons CO₂e per year, and existing sources that undertake modifications that increase emissions by at least 75,000 tons CO₂-e per year.

In its proposed finding of substantial inadequacy, EPA indicates that it will establish a revision deadline of as short as three weeks upon the request of individual jurisdictions. States that wish to avoid a lapse in PSD authority must therefore either request an aggressive deadline for submission of revised SIPs (thus ensuring that a FIP could be put in place by January 2, 2011), or submit revised SIPs in time for EPA to approve them before January 2, 2011.

Once the proposed rules are published in the Federal Register, the public will have thirty days to submit written comments to EPA. A public hearing will also be held on these proposed rules on August 25, 2010 in Arlington, Virginia. EPA expects to finalize the rules on or about December 1 of this year.

EPA’s next anticipated step towards implementing PSD permitting for GHG sources is the release of proposed policy guidance to assist permitting authorities in determining BACT for GHG emissions. The agency is expected to make this guidance available for public comment beginning in September of this year.