June 24, 2014
On June 23, 2014, the U.S. Supreme Court ruled in Utility Air Regulatory Grp. v. EPA, that the United States Environmental Protection Agency ("EPA") exceeded its statutory authority under the Clean Air Act when it determined that stationary source emissions of greenhouse gases ("GHGs") would trigger permitting obligations under the Prevention of Significant Deterioration ("PSD") program and Title V of the Act. The Court, however, upheld those portions of EPA’s rulemaking that would require a source to apply "best available control technology" ("BACT") to GHG emissions where the source would otherwise trigger PSD permitting on account of its emissions of other pollutants. The Supreme Court’s decision was limited to EPA’s regulation of GHG emissions under the PSD and Title V provisions of the Clean Air Act, and it left unanswered other questions regarding the permissible sweep of EPA’s permitting and BACT authority under the PSD program, and the Agency’s broader efforts to regulate GHG emissions from stationary sources.
In Massachusetts v. EPA, the Supreme Court held that EPA may promulgate regulations limiting GHG emissions from new motor vehicles if EPA makes an "endangerment finding" under Section 202(a) of the Act. That decision spurred substantial regulatory activity targeting both mobile and stationary sources of GHG emissions.
First, EPA made an Endangerment Finding under Section 202(a), concluding that "elevated concentrations of greenhouse gases in the atmosphere . . . endanger the public health and . . . welfare," and that "emissions of . . . greenhouses gases from new motor vehicles contribute to th[at] air pollution." In light of that Endangerment Finding, EPA was required, pursuant to the Court’s holding in Massachusetts, "to regulate emissions of [GHGs] from new motor vehicles." EPA subsequently issued, jointly with the National Highway Traffic Safety Administration, the "Tailpipe Rule" establishing fuel economy and GHG emission standards for light duty vehicles.
In April 2010, EPA issued the "Timing Rule" in which it determined that regulating vehicular GHG emissions under Section 202 triggers PSD and Title V permitting requirements. The Clean Air Act’s PSD provisions prohibit construction or modification of a "major emitting facility," without first obtaining a permit. A "major emitting facility," is defined in the statute as a facility that emits (or has the potential to emit) at least 250 tons per year ("tpy") of "any air pollutant," or at least 100 tpy of "any air pollutant" if the facility is within certain, statutorily enumerated industrial source categories. As a condition for obtaining a PSD permit, the Act requires that the facility must comply with emissions limitations reflecting the "best available control technology" ("BACT") for "each pollutant subject to regulation under [the Act]." Title V requires an operating permit for any "major stationary source," that has the potential to emit at least 100 tpy of "any air pollutant."
EPA found that applying these statutory thresholds to CO2, however, would sweep tens of thousands of sources into the PSD and Title V permitting programs for the first time and at a cost of billions of dollars. In order to avoid this "absurd" result, EPA subsequently issued the "Tailoring Rule," which revised upwards the statute’s numerical permitting thresholds for stationary-source GHG emissions. The Tailoring Rule also provided a multi-step phase-in approach during which stationary sources would become subject to the PSD and Title V requirements. Critically, during Step 1 of the phase-in, a source would not become newly subject to permitting requirements based solely on its GHG emissions until July 1, 2011. However, sources required to obtain permits anyway because of their emission of non-GHG pollutants (what the Supreme Court called "anyway sources") would be required to comply with BACT requirements for GHGs if its emissions were to exceed a certain level.
Several state coalitions, industry trade associations and public interest groups challenged EPA’s GHG rulemaking in the D.C. Circuit Court of Appeals. These challenges raised three broad issues: (1) the scientific basis for EPA’s Endangerment Finding, (2) the legal bases for the Timing Rule and the Tailoring Rule, and (3) EPA’s decision to promulgate motor-vehicle emission standards under Section 202(a) despite the Agency’s conclusion that doing so would trigger costly stationary-source regulation. The D.C. Circuit rejected the petitioners’ challenges and upheld all aspects of EPA’s GHG rulemaking. After the D.C. Circuit denied rehearing en banc, nine separate petitions for writ of certiorari were filed in the Supreme Court seeking review of various aspects of EPA’s GHG rulemaking and the D.C. Circuit’s decision.
The Supreme Court granted certiorari on the limited question of "[w]hether EPA permissibly determined that its regulation of greenhouse gas emissions from new motor vehicles triggered permitting requirements under the Clean Air Act for stationary sources that emit greenhouse gases." In answering this question, the Court recognized it was faced with "two distinct challenges to EPA’s stance on greenhouse-gas permitting for stationary sources." First, the Court addressed whether EPA permissibly determined that a stationary source may be subject to PSD and Title V permitting requirements "on the sole basis of the source’s potential to emit greenhouse gases." Second, the Court decided "whether EPA permissibly determined that a source already subject to the PSD program because of its emission of conventional pollutants (an ‘anyway’ source) may be required to limit its [GHG] emissions by employing the ‘best available control technology’ for [GHGs]."
The Court held that EPA impermissibly determined that it could require a stationary source to obtain a PSD or Title V permit based solely on its potential GHG emissions.
The Court first rejected the Court of Appeals’ determination that such an interpretation was "compelled" by the statute. Under Massachusetts v. EPA, the Act-wide definition of "air pollutant" includes greenhouse gases. Because the Act requires permits for major emitters of "any air pollutant," the lower court concluded that the Act requires permits for major emitters of greenhouse gases. The Court rejected this argument, observing that "[t]he conclusion follows from the premises only if the air pollutants referred to in the permit-requiring provisions . . . are the same air pollutants encompassed by the Act-wide definition as interpreted in Massachusetts." However, Massachusetts "did not hold that EPA must always regulate greenhouse gases as an ‘air pollutant’ everywhere that term appears in the statute." While there is a presumption that identical words used in different parts of a statute have identical meaning, the Court noted that this presumption "’readily yields’ to context." In fact, the Court observed that "where the term ‘air pollutant’ appears in the Act’s operative provisions, EPA has routinely given it a narrower, context-appropriate meaning," including in applying the Title V and PSD provisions. In light of this history, the Court held:
It is plain as day that the Act does not envision an elaborate, burdensome permitting process for major emitters of steam, oxygen, or other harmless airborne substances. It takes some cheek for EPA to insist that it cannot possibly give "air pollutant" a reasonable, context-appropriate meaning in the PSD and Title V contexts when it has been doing precisely that for decades.
Accordingly, the Court held that EPA’s interpretation of the PSD and Title V triggering requirements was not required by the statute or the Court’s decision in Massachusetts.
The Court also rejected EPA’s alternative argument that its interpretation was permissible as a reasonable construction of the statute, and therefore entitled to deference under the Chevron deference standard. This conclusion, the Court held, followed from the fact that EPA found it necessary to issue the Tailoring Rule to rewrite the clear numeric permitting thresholds found in the statute in order to make it work for GHGs. "EPA stated that these results [of regulating GHG emissions under PSD and Title V] would be so ‘contrary to congressional intent,’ and would so ‘severely undermine what Congress sought to accomplish,’ that they necessitated as much as a 1,000-fold increase in the permitting thresholds set forth in the statute.
The Court then struck down EPA’s Tailoring Rule exactly because it sought to rewrite unambiguous statutory terms (the numeric permitting triggers). The Court held that "[i]t is hard to imagine a statutory term less ambiguous than the precise numerical thresholds at which the Act requires PSD and Title V permitting." While the Court recognized that agencies, in administering regulatory regimes, must often resolve questions left open by Congress, it "reaffirm[ed] the core administrative-law principle that an agency may not rewrite clear statutory terms to suit its own sense of how the statute should operate." Because the Tailoring Rule exceeded EPA’s statutory authority, it could not justify EPA’s GHG-inclusive interpretation of the PSD and Title V triggering provisions.
Second, the Court considered whether EPA reasonably determined that stationary sources may be required to comply with "best available control technology" emission standards for GHGs if those sources would already need permits based on their emissions of other pollutants. On this question, the Court found that where a PSD permit would otherwise be required, EPA could require BACT with respect to "each pollutant subject to regulation under [the Act]" including GHGs.
Distinguishing the phrasing of the BACT provision from the "any air pollutant" language in the permit triggering provisions, the Court observed the "dubious breadth" of the latter phrase required the exercise of agency judgment to identify which pollutants would be addressed by a particular regulatory program. In contrast, the "more specific phrasing of the BACT provision suggests that the necessary judgment has already been made by Congress." The Court further held that, in contrast to EPA’s construction of the triggering provisions, "applying BACT to greenhouse gases is not so disastrously unworkable, and need not result in such a dramatic expansion of agency authority, as to convince us that EPA’s interpretation is unreasonable." The Court, however, did not endorse any specific BACT formulation, and acknowledged "the potential for [GHG] BACT to lead to an unreasonable and unanticipated degree of regulation." Rather, it simply held that "nothing in the statute categorically prohibits EPA from interpreting the BACT provision to apply to [GHGs] emitted by ‘anyway’ sources."
The Court’s ruling in Utility Air Regulatory Group left several important unanswered questions regarding PSD and Title V permitting generally, as well as EPA’s authority to regulate GHG emissions from stationary sources under other provisions of the Clean Air Act.
First, the Court’s holding arguably did nothing more than find that GHGs do not trigger PSD and Title V permitting requirements under the Clean Air Act. The Court, however, failed to articulate a more broadly-applicable construction of the Act’s provisions that would lead to this conclusion. The Court observed that "several possible limiting constructions for the PSD trigger have been proposed" through the course of litigation. In his dissent from denial of rehearing en banc in the D. C. Circuit, for example, Judge Kavanaugh proposed that "any air pollutant" in the PSD context refers only to pollutants for which EPA has established National Ambient Air Quality Standards under 42 U.S.C. § 7407. Alternatively, because a PSD permit is required only for major emitting facilities "in any area to which this part [the PSD program] applies," some petitioners urged the Court to find that PSD permitting applies only where a facility is emitting threshold quantities of a NAAQS pollutant for which the area is in attainment. The Court chose not to address which, if any, of these proposed constraints on the PSD and Title V triggers is appropriate. The Court did not "foreclose EPA or the courts from considering those constructions in the future." Given the admonition in Massachusetts v. EPA that the Agency must articulate a "reasoned explanation" for its decisions to regulate or not regulate GHGs under the Act, EPA may be required on remand to set forth a more refined interpretation of PSD’s triggering provisions.
Second, although the opinion has left open myriad possibilities for EPA’s determination of BACT for GHG emissions, the Court cautioned that its decision "should not be taken as an endorsement of all aspects of EPA’s current approach, nor as a free reign for future regulatory application of BACT in this distinct context." Indeed, certain aspects of the Court’s opinion could be viewed as shots across EPA’s bow, signaling that the Agency should be careful concerning the manner in which it regulates stationary sources. For example, the Court noted that the GHG control measures outlined in EPA’s 2011 PSD and Title V Permitting Guidance for Greenhouse Gases "lends some credence to petitioners’ fears" that EPA may be seeking to regulate energy use and "to control ‘every aspect of a facility’s operation and design,’ right down to the ‘light bulbs in the factory cafeteria.’" Nevertheless, the Court found that "assuming without deciding that BACT may be used to force some improvements in energy efficiency, there are important limitations on BACT that may work to mitigate petitioners’ concerns about ‘unbounded’ regulatory authority," such as the fact that BACT is based on a "control technology" that "cannot be used to order a fundamental redesign of the facility."
Finally, the Court did not give any clear signals that would inform EPA or stakeholders concerning the propriety of EPA’s current efforts to limit GHG emissions from new and existing fossil-fuel fired electric generating utilities. However, the Court did signal that EPA may not ignore the clear statutory terms of the Clean Air Act in order to make its provisions "work in practice" for GHGs, and that courts should view "with a measure of skepticism" any attempt by EPA to regulate GHGs in a manner that would "bring about an enormous and transformative expansion in EPA’s regulatory authority" or "regulate ‘a significant portion of the American economy’" without clear Congressional approval. These statements may be read as signaling that EPA’s authority to regulate stationary source emissions of GHGs under the Clean Air Act may not be broad enough to allow the sweeping proposed rules that the Agency has recently issued.
 See Standards of Performance for Greenhouse Gas Emissions From New Stationary Sources: Electric Utility Generating Units, 79 Fed. Reg. 1430 (Jan. 8, 2014); Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units, 79 Fed. Reg. 34,830 (June 18, 2014).
Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have about these developments. To learn more about the firm’s Environmental Litigation and Mass Tort Group, Energy and Infrastructure Group or Energy, Regulation and Litigation Group, please contact the Gibson Dunn attorney with whom you usually work or the authors in the firm’s Washington, D.C. office:
Please also feel free to contact the following practice group leaders:
Environmental Litigation and Mass Tort Group:
Patrick W. Dennis – Los Angeles (213-229-7568, email@example.com)
Jeffrey D. Dintzer – Los Angeles (213-229-7872, firstname.lastname@example.org)
Alan N. Bick – Orange County (949-451-4211, email@example.com)
Peter E. Seley – Washington, D.C. (202-887-3689, firstname.lastname@example.org)
© 2014 Gibson, Dunn & Crutcher LLP
Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.