Climate, Energy, & Air Weekly Update - February 6-10, 2012

EPA finalizes some outstanding amendments to the CSAPR, which is currently subject to a D.C. Circuit-issued stay . . . Now in the queue at the Office of Management and Budget is a further modification to the Tailoring Rule, which likely will lower the GHG emission thresholds for permitting of new and modified stationary sources . . . Pennsylvania finalizes state hydraulic fracturing rules and fees; the state law pre-empts more stringent local regulations . . . The California Legislative Analyst’s Office recommends that the General Assembly “seriously consider” changes to the cap-and-trade regulations, including eliminating entity-specific “holding limits” for compliance instruments and “user liability” for invalidated offset credits.

Executive Branch

• EPA Finalizes Amendments to CSAPR, Clarifies Status of Newly Covered States.  Despite a court order suspending the enforcement of the Cross-State Air Pollution Rule (CSAPR), the Environmental Protection Agency (EPA) has issued two final rules modifying the structure of the program.  Promulgated in July 2011, the CSAPR establishes a limited interstate cap-and-trade program for power sector emissions of nitrogen oxides (NO_x) and sulfur dioxide (SO₂), covering 28 states in the Eastern half of the United States.  One of EPA’s amendments to CSAPR, originally proposed on October 6, 2011, would increase the aggregate limit on SO₂ emissions from power plants located in Texas; increase SO₂ and NO_x limits for power plants in nine other states; and delay the effective date of a limitation on interstate trading of emission allowances (known as the “assurance provisions”) until 2014.  The second rule, which is being issued as a “direct final” rule, would revise state-wide emission budgets for an additional eight states covered by the CSAPR.  Together, these two new rules increase the allowed amount of emissions in states covered by the CSAPR by two percent.  In addition to these two amendments, EPA issued a Federal Register notice clarifying that the Agency will apply the court’s suspension of CSAPR  to five states (Iowa, Michigan, Missouri, Oklahoma, and Wisconsin) whose ozone-season NO_x emissions were made subject to the program in a separate rule issued subsequent to the CSAPR.  EPA’s notice makes clear that the CSAPR is suspended in all 28 states subject to the rule.   The two rules are available at http://epa.gov/airtransport/actions.html; the Federal Register notice is available at http://www.gpo.gov/fdsys/pkg/FR-2012-02-06/pdf/2012-2328.pdf. 
• Third Phase of Tailoring Rule Now Under Review at OMB.   The White House Office of Management and Budget (OMB) has commenced review of a proposed EPA regulation that is expected to lower the greenhouse gas (GHG) emission threshold that will trigger Clean Air Act permitting requirements for stationary sources.  The new emission threshold would apply to Prevention of Significant Deterioration (PSD) permits requiring “best available control technology” for emissions from new and modified stationary sources, as well as operating permits (“Title V” permits) that are required for new and stationary sources exceeding the threshold.   The proposed rule will build on EPA’s April 2010 “Tailoring Rule,” in which EPA established GHG-specific emission thresholds for PSD and Title V permits in lieu of the thresholds provided by statute.  In the Tailoring Rule, EPA committed to gradually lower the thresholds over time, such that PSD and Title V requirements for GHGs would apply to a progressively larger universe of sources.  EPA has indicated that the next “phase” of thresholds will apply by  summer 2013.
• Press Obtains Leaked Draft of BLM Proposal to Require Disclosure of Hydraulic Fracturing Fluids Used on Federal Lands.  The Bureau of Land Management (BLM), which is responsible for administering Federal lands spanning approximately one-eighth of the country’s land area, is preparing a proposed rule that would establish certain disclosure and well testing requirements for hydraulic fracturing operations taking place on BLM lands.  Details of the proposal, which has not yet been formally released for public comment, appeared in a report in the Houston Chronicle.  Among other things, the current draft of the proposed rule would require operators of hydraulically fractured wells to disclose all chemical constituents of drilling fluid used for hydraulic fracturing; perform mechanical integrity tests of all well casings; and submit plans for handling and disposing of drilling fluids recovered from wells.  The Houston Chronicle’s story is available at http://www.chron.com/default/article/Industry-slams-federal-plan-to-list-fracturing-3087948.php
• Construction of First New Nuclear Generating Facility Since 1978 Approved by NRC.  The Nuclear Regulatory Commission (NRC) voted 4 to 1 to approve Southern Company’s application for a license to build and operate two new nuclear reactors at its Vogtle power plant in Georgia – the first such approval to be issued in over three decades.  The NRC license will be issued in approximately ten days, allowing construction of the $14 billion reactors to begin.  The reactors, which will be based on a new passively cooled design approved by the NRC, are expected to commence operation in 2016 and 2017.  NRC Chairman Gregory Jaczko was the only Commissioner to oppose the license approval; he asserted the NRC should complete a re-evaluation of its safety regulations before approving new licenses.    
• McCarthy Defends EPA Approach to Extending Utility MATS Compliance Deadlines.  EPA’s Assistant Administrator for Air and Radiation, Gina McCarthy, commented on the Agency’s approach for case-by-case extensions of compliance deadlines under the recently-issued Utility Mercury and Air Toxics Standards (MATS) at the National Association of Regulatory Utility Commissioners (NARUC) and Federal Energy Regulatory Commission (FERC) Forum on Reliability and the Environment.  As required by the Clean Air Act, the Utility MATS provides a three-year window for existing coal- and oil-fired generating units to comply with stringent hazardous air pollutant standards, with the possibility of a one-year extension.  For generating units that are critical to electric system reliability and need more time to comply, EPA has issued an enforcement policy under which the Agency would issue case-by-case “administrative orders” deferring the Utility MATS deadlines for an additional (fifth) year.  McCarthy defended this approach at the forum, saying that EPA has issued thousands of such orders over the last several decades.  She also argued that the process for issuing administrative orders is relatively streamlined, noting that these orders do not require public comment or court approval.  Asked whether generating units covered by an administrative order could still face civil liability in citizen suits, McCarthy said EPA “will make the best argument possible” to defend an administrative order – adding that the relatively short duration of the extension would provide little time for a court challenge and that “the threat of civil litigation is not particularly one that folks should be concerned about.”  As an alternative to administrative orders, McCarthy also said EPA would be open to entering into formal court-approved consent decrees with utilities.
• OMB Reviewing New Emission Standards for Petroleum Refineries.  OMB has also begun its review of a final EPA rule that would make amendments to the Agency’s New Source Performance Standards (NSPS) for petroleum refineries.  Proposed in December 2008, the updated NSPS standards are expected to establish more stringent regulation of SO₂ emissions from flares located at new and modified refineries, and prescribe new NO_x emission standards for various categories of process heaters. 
• President Nominates Norris for Second Term as FERC Commissioner.  President Obama has nominated John Norris to serve a second term on the five-member Federal Energy Regulatory Commission (FERC).  Norris’ current term expires in June of this year.   

Congress

• Both House and Senate Start Work on Transportation Bill.  On Thursday, the Senate voted 85 to 11 to invoke cloture, allowing for debate on the “Moving Ahead for Progress in the 21st Century Act” (S. 1813), a bill to reauthorize Federal-aid highway and highway safety construction programs.  S. 1813 would provide two years of authorizations and funding for transportation programs at current funding levels.  In addition to funding transportation programs, S. 1813 also provides funds for projects and programs in air quality nonattainment and maintenance areas for ozone, carbon monoxide, and particulate matter, which reduce transportation related emissions. The bill includes a provision closing what is known as the black liquor loophole and a provision to immediately transfer $3 billion from the Leaking Underground Storage Tanks fund to the Highway Trust fund.   Meanwhile, House Republican leadership announced that they will compile the text of bills reported by three separate House committees into the “American Energy and Infrastructure Act” (H.R. 7).  While this bill is significantly different, both in scope and cost, it also would reauthorize Federal-aid highway and highway safety construction programs and will serve as the companion to S. 1813.  Among other things, H.R. 7 would give state and local governments increased involvement in determining how transportation dollars are spent and would open areas in the Arctic National Wildlife Refuge (ANWR) and the Gulf of Mexico to oil and gas development.
• Six House Republicans Express Opposition to ANWR Provision. On Thursday, six House Republicans sent a letter to House Speaker John Boehner (R-OH) expressing opposition to the provisions in H.R. 7 to allow oil and gas development in the Arctic National Wildlife Refuge.  The provision was included in the section of the bill passed by the House Natural Resources Committee in an effort to raise revenue and offset the cost of the bill.  The letter is available at:  http://www.eenews.net/assets/2012/02/10/document_daily_02.pdf
• House Committee Reiterates Request for Solyndra Documents.  House Energy and Commerce Committee Republicans sent a letter to the White House counsel requesting interviews with five White House officials by February 17 and production of certain previously-requested documents by February 21.  While the letter does not directly threaten a contempt-of-Congress vote, it does state that “without your complete compliance with the subpoenas by February 21, you will compel us to pursue all options available to the Committee.”
• Senate Leadership Outlines Process for Considering Cyber Legislation.  On Thursday, Senate Majority Leader Harry Reid (D-NV) sent a letter to the Chamber of Commerce outlining the process for the Senate to consider cybersecurity legislation in the coming weeks.  The letter is available at:  http://democrats.senate.gov/2012/02/09/reid-outlines-process-for-cybersecurity-legislation-including-%E2%80%9Cfair-and-open%E2%80%9D-amendment-process/
• Colorado Senators Send Letter to Tax Committee Chairmen. Colorado Senators Mark Udall and Mike Bennett sent a letter to the chairs of the Senate Finance and House Ways and Means Committee requesting inclusion of a provision to extend the Production Tax Credit (PTC) in the payroll tax conference report currently being negotiated. The letter is available at:  http://www.scribd.com/fullscreen/81064689?access_key=key-l9jp9ke26ecee0nxgzt.

Judicial

• Federal District Court Rules EPA Missed Window to Seek Civil CAA Penalties.  A federal district court judge in Montana ruled recently that the EPA cannot seek civil penalties from Ameren Missouri under the Clean Air Act (CAA)’s prevention of significant deterioration (PSD) program because the agency took action after the five-year statute of limitations period.  The alleged penalties were with regard to two coal-fired power plant modification projects finished in 2002 and 2004.  The modification projects were required to obtain a permit and control emissions using best available control technology, and EPA alleged violations of the PSD program, the Missouri state implementation plan, and Ameren’s Title V operating permit.  However a federal judge found in United States v. Ameren Missouri, E.D. Mo., No. 4:11-cv-77, that  because the statute of limitation period had passed, four of the six counts the government had made against Ameren could not proceed.  The Agency argued that the statute of limitations was not breached because operating in violation of a permit is an ongoing violation, but the court rejected that argument and partially granted Ameren’s motion to dismiss the case.  The two counts remaining in the case are with regard to projects completed in 2007 and 2010, which are still within the statute of limitations. 

States

• New Mexico Scraps Cap-and-Trade Program.  Last week, the New Mexico Environmental Improvement Board (“EIB”) unanimously voted to repeal the State’s CO₂ cap-and-trade program rules.  The rules were initially issued by EIB in 2010 as a part of the New Mexico Air Quality Control Act, but were strongly opposed by Governor Susana Martinez, who took office in January 2011.  The New Energy Economy, an environmental group, plans to appeal the EIB vote.  Public Service Co. of New Mexico, operator of a coal-fired generating station in the state, supports the cap-and-trade program repeal.  The EIB will meet in March to vote on the repeal of additional New Mexico rules that cap CO₂ emissions.
• Pennsylvania House Approves Natural Gas Drilling Impact Fee.  On February 8, the Pennsylvania legislature approved H.B. 1950, which imposes an impact fee on unconventional hydraulic fracturing natural gas production, and requires producers to reveal the chemicals they use on FracFocus.org, with an exemption for trade secrets.  The annual impact fee will be pegged to natural gas prices during the year of production and adjusted for inflation starting in 2013.  The legislation prohibits municipalities and counties from imposing stricter regulations on producers than they impose on any other industry. The impact fee is expected to generate $220 million of revenue in 2012.  Local governments will keep 60 percent of this revenue for drilling-related emergency preparedness and infrastructure projects.  The remaining 40 percent of revenue will fund environmental projects throughout Pennsylvania.  Governor Tom Corbett is expected to sign the bill in to a law.  A copy of the legislation is available online, here.
• California Legislative Analyst’s Office Recommends Changes to Cap-and-trade Regulations.  California’s Legislative Analyst’s Office (LAO) – a non-partisan office within the state legislature that provides fiscal and other analyses of state policies – published a study of the cap-and-trade regulations that have been promulgated by the state’s Air Resources Board under the A.B. 32 law.  The study assesses several elements of the regulations, and recommends that the legislature “seriously consider” three modifications: (1) shifting liability for invalid offset credits from credit users to project developers, or establishing a reserve of credits by holding back a small percentage of credits from each project; (2) eliminating the limit on the amount of compliance instruments an entity may hold, and relying instead on other tools to deter market manipulation; (3) reducing uncertainty about whether and how the cap-and-trade program will operate after 2020 in order to promote long-term investments in emissions mitigation.  The report is available at: http://www.lao.ca.gov/laoapp/PubDetails.aspx?id=2559. 

Industry & NGOs

• New Report Says Global Wind Energy Increased by 21% in 2011.  The Global Wind Energy Council (“GWEC”), a wind energy trade association, released a report stating global installed capacity for wind energy increased by 21% in 2011.  GWEC says China installed 18,000 MW of new capacity, triple the amount of new capacity installed in the United States.  The study asserts that growth in Chinese wind capacity is driven largely by feed-in tariffs while U.S. growth is contingent on the federal PTC, which is scheduled to expire at the end of 2012.  A copy of the report is available at http://www.gwec.net/fileadmin/images/News/Press/GWEC_-_Global_Wind_Statistics_2011.pdf.