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Supreme Court Issues Mixed GHG Ruling

June 24, 2014

 

On June 23, 2014, the U.S. Supreme Court (the “Court”), in a divided and complex opinion,[1] held that the Environmental Protection Agency (“EPA”) exceeded its statutory authority by subjecting stationary sources to Clean Air Act (“CAA”) permitting and control technology requirements based solely on the sources’ potential to emit greenhouse gases (“GHG”). The Court, however, upheld EPA’s power to regulate GHG in the context of imposing best available control technology (“BACT”) requirements for GHG emissions from sources already regulated under the CAA Prevention of Significant Deterioration (“PSD”) program. The Court’s ruling reversed, in part, the June 26, 2012, unanimous ruling by the U.S. Court of Appeals for the D.C. Circuit (“D.C. Circuit”), which upheld the EPA’s power to apply GHG emissions standards to mobile sources and left in place permit requirements for GHG emissions as applied to stationary sources that emit more than 100,000 tons per year (“tpy”) of carbon dioxide equivalent units (“CO2e”) for newly constructed sources or 75,000 tpy of CO2e for modified sources (see OMM July 5, 2012, Client Alert: D.C. Circuit Upholds EPA Greenhouse Gas Regulations). Significantly, the Court’s opinion highlights that the sources already regulated under the PSD program—at which sources imposing GHG control technology the Court found to be within EPA authority—account for approximately 83% of all GHG emissions originating from stationary sources, as opposed to the 3% of GHG emissions from sources that would be regulated solely on the basis of GHG emissions.

Background

Pursuant to Title I of the CAA, EPA has issued national ambient air quality standards (NAAQS) for six “criteria” air pollutants—sulfur dioxide, particulate matter, nitrogen dioxide, carbon monoxide, ozone and lead. Every area within each state’s border must be designated as an “attainment,” “non-attainment,” or “unclassifiable” area. In all attainment or unclassifiable areas, stationary sources are subject to PSD. Because every area of the country has been designated as in attainment or unclassifiable with regard to at least one of the six NAAQS, the EPA takes the position that all stationary sources are subject to PSD review. In order to construct or modify a “major emitting facility” in an area where PSD applies, a permit must be obtained that assures that emissions from the facility will not cause or contribute to the violation of any applicable air-quality standard and that BACT has been utilized for “each pollutant subject to regulation under” the CAA. Further, Title V of CAA prohibits the operation of a “major source”—or a stationary source that can emit 250 tpy (100 tpy for certain types of sources) of any air pollutant—without an operating permit.

In its April 2007 decision in Massachusetts v. EPA,[2] the Court determined that GHGs are air pollutants covered by the CAA, requiring EPA to consider whether GHGs threaten public health and welfare. EPA subsequently issued an “Endangerment Finding,”[3] stating that GHGs “may reasonably be anticipated to endanger public health or welfare.” Based on this finding, EPA first established new emission standards (fuel economy of 35.5 miles per gallon by 2016) for light trucks (“Tailpipe Rule”). Because of its Endangerment Finding, EPA then determined that the CAA requires major stationary sources of GHGs to obtain construction and operating permits. However, because regulation of stationary sources using the 250 tpy/100 tpy threshold in the CAA would potentially subject more than 1.6 million facilities to permit requirements, EPA decided to issue the so-called “Tailoring Rule,” which limited permit requirements to those stationary sources with GHG emissions that exceed 100,000 tpy for newly constructed sources or 75,000 tpy for facility modifications (see OMM October 8, 2009, Client Alert: EPA’s Proposed Tailoring Rule—Another Significant Step Toward Regulating Climate Change Under The Clean Air Act)

Various state and industry groups challenged the Endangerment Finding, the Tailpipe Rule, and the Tailoring Rule before the D.C. Circuit, which concluded that EPA’s Endangerment Finding and Tailpipe Rule were consistent with the U.S. Supreme Court’s decision in Massachusetts v. EPA and constituted a proper assessment of the available scientific evidence on GHG impacts and dismissed the challenges to the Tailoring Rule for lack of standing. The Court found that the Tailoring Rule not only failed to cause petitioners any injury, but that the rule actually mitigated potential injuries by placing more parties outside the scope of permit requirements.

Potential Emitters of GHGs

In its ruling, the Court rejected the DC Circuit’s finding that PSD and Title V permit requirements could be triggered based solely on a source’s potential to emit GHGs. In Massachusetts v. EPA, the Court ruled that GHG emissions fell within the CAA definition of “air pollutant.” Based on that decision, EPA reasoned that because GHG emissions are CAA “air pollutants,” the CAA required or allowed PSD and Title V permit requirements to be triggered solely based on GHG emissions. Despite the ruling in Massachusetts v. EPA, the Court in this case stated that the term “any air pollutant” meant different things for PSD and Title V purposes because EPA has historically limited the triggering provisions of those programs to regulated air pollutants. Therefore, even though “regulated air pollutants” is not a term used or defined in the CAA,[4] the Court found that EPA’s interpretation that GHG emissions meet the “any air pollutant” requirement for purposes of PSD and Title V was unreasonable because it would “bring about an enormous and transformative expansion in EPA’s regulatory authority without clear congressional authorization,” and that “the power to require permits for the construction and modification of tens of thousands, and the operation of millions, of small sources nationwide falls comfortably within the class of authorizations that we have been reluctant to read into ambiguous statutory text.” The Court also highlighted that the number of PSD applications would rise from 800 to 82,000 per year, with administrative costs increasing from $12 million to $1.5 billion, and that, under Title V, facilities requiring permits would rise from 15,000 to 6.1 million, with administrative costs rising from $62 million to $21 billion, which would collectively cost the newly covered sources $147 billion.

Without deciding the standing issue, the Court also declared the Tailoring Rule invalid, finding that EPA’s decision to rewrite the statutory thresholds was impermissible, and finding that an “agency has no power to ‘tailor’ legislation to bureaucratic policy goals by rewriting unambiguous statutory terms.” The Court expressed fear regarding the limits of EPA’s power if it was allowed to “assert newfound authority to regulate millions of small sources…and to decide, on an ongoing basis and without regard for the thresholds prescribed by Congress, how many of those sources to regulate.”

Sources Subject to BACT

Although the Court invalidated the Tailoring Rule and EPA’s ability to regulate sources solely on the basis of GHG emissions, it upheld EPA’s determination that sources already subject to the PSD program can also be required to implement BACT in order to limit their GHG emissions. The Court rejected the argument that EPA may never require BACT for GHGs, even when a source must undergo PSD review, finding that the text of the BACT provision in CAA is less open-ended than the PSD and Title V requirements. Further, the Court found that the ruling would not result in an expansion of EPA jurisdiction and that the BACT provision can sensibly be interpreted to include regulation of GHGs as applied to stationary sources already regulated under PSD.

Dissenting Opinions

Justice Breyer delivered a partial dissent[5] in which he argued that, based on EPA’s Endangerment Finding and the Court’s decision in Massachusetts v. EPA, EPA is within its authority to regulate stationary sources that emit quantities of GHGs above the statutory threshold of 250 tpy, and that EPA has the power to tailor the permitting thresholds so as to make implementation reasonable.

Justice Alito also wrote a partial dissent rejecting EPA’s authority to regulate GHGs completely, even as applied to those sources already subject to the implementation of BACT for other conventional pollutants, arguing that trying to do so distorts the statutory scheme adopted by Congress. Justice Thomas joined in the partial dissent.

Conclusion

It remains to be seen what impact the Court’s ruling will have on EPA’s other efforts to regulate GHGs (see OMM June 3, 2014, Client Alert: Environmental Protection Agency Proposes Greenhouse Gas Emissions Reductions), but the Court’s critical eye toward the expansion of EPA power beyond statutory bounds may encourage future litigation challenges to GHG regulation.


[1] 573 U. S. ____ (2014). Note that the Court ruled 5–4 as to Parts I, II A, and II B-1, which struck down EPA’s authority to regulate sources solely based on GHG emissions, where Justice Scalia was joined by Chief Justice Roberts, Justice Kennedy, Justice Thomas, and Justice Alito. The Court ruled 7–2 as to Part II B-2, which upheld EPA’s authority to regulate GHGs under BACT, where Justice Scalia was joined by Chief Justice Roberts, Justice Kennedy, Justice Breyer, Justice Ginsburg, Justice Sotomayor, and Justice Kagan; with Justice Alito dissenting in which Justice Thomas joined.
[2] 549 U.S. 497 (2007).
[3] 74 Fed. Reg. 66523, 66537.
[4] Regulated NSR (New Source Review) pollutant is a term used in EPA’s PSD regulations. See 40 CFR §52.21(b)(1)–(2), (5).
[5] Justice Breyer’s partial dissent was joined by Justice Kegan, Justice Ginsburg, and Justice Sotomayor.


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