Environmental Law ReSource : Environmental Lawyer & Attorney : Reed Smith Law Firm : Climate Change, Sustainability

Challenge to the Endangerment Finding

The endangerment finding in December 2009 established that GHGs contribute to climate change and threaten the public health and welfare of the American people. USEPA is likely to prevail that its determination was proper.

The petitioners’ challenges can be grouped loosely into two arguments (1) USEPA did not have the scientific basis to make its endangerment finding and (2) USEPA should have considered policy issues other than pure scientific basis in making the determination. With regard to former issue, it is likely the D.C. Circuit will hold that its place is not to second guess the scientific basis for USEPA’s determination. On the latter issue, looking at the express language of the statute and to the U.S. Supreme Court’s decision in Massachusetts v EPA, policy considerations are not properly part of an Endangerment Finding under Section 202(a) of the Clean Air Act.

Challenge to the Tailpipe Rule

The Tailpipe Rule allows USEPA to establish carbon standards for light-duty vehicles. In this challenge, USEPA is likely to prevail, at least with respect to the four GHGs that are actually emitted from light duty vehicles. After USEPA makes an endangerment finding, Clean Air Act 202(a) provides, “Administrator shall by regulation prescribe…, standards applicable to the emission of any air pollutant from… new motor vehicle engines…” Petitioners argued that the Tailpipe Rule was not necessary even after US EPA issued its endangerment finding. To hold for the petitioners, the D.C. Circuit would effectively be holding that the “shall” language under Clean Air Act § 202(a) does not mean “shall”. Further, it is interesting to note that the auto industry itself (the regulated entities under the Tailpipe Rule) supported USEPA’s position. The industry petitioners who challenged the Tailpipe Rule were doing so not because they were affected by the Tailpipe Rule from a regulation standpoint – they challenged them to preserve industry’s arguments on the issues discussed below.

Challenge to “Grounds Arising After” Case

It appears that USEPA will probably prevail here. Under the Clean Air Act Section 307 and the Administrative Procedure Act (APA) , there is a 60-day window to challenge a regulation – after which the window closes and there is rarely subsequent right to assert a challenge . Under Massachusetts v. EPA, GHGs are an “air pollutant” under the Clean Air Act. Here, the petitioners challenged the inclusion of GHGs under the PSD regulations (the “GHG PSD Rule”) more than 60 days after USEPA expressly confirmed the applicability of PSD to any pollutant regulated under the Clean Air Act, including specifically all non-NAAQS pollutants. (USEPA confirmed this in regulations issued in 1978, 1980 and 2002 (collectively, the “PSD Applicability Rules”))

Petitioners argued that that the GHG PSD Rule, specifically the inclusion of GHGs in the PSD scheme, raised “unexpected difficulties” that could not have been foreseen at the time of the original PSD Applicability Rules and/or that the GHG PSD challenges raised now were not “ripe” at the time the PSD Applicability Rules were finalized. USEPA countered that these arguments could have been raised at the time of the PSD Applicability Rules’ finalization. The Court seemed relatively unsympathetic to Petitioners view on this point.

Challenge to “Tailoring” and “Timing” Rules

The ‘Timing Rule” is EPA’s ruling regarding when regulations of GHGs would begin (in this case, concomitant with regulation of tailpipe emissions) and the “Tailoring Rule” establishes what sources are subject to regulation. Petitioners’ strongest case would appear to be the challenge to the Tailoring Rule. The Tailoring Rule has always been considered the “weakest link” in USEPA’s GHG regulations. The reason for this is that the Tailoring Rule “tailors” applicability for GHG PSD regulation to sources that emit 75,000 or 100,000 tons per year (tpy) of carbon dioxide equivalent (CO2E). The problem is the express language of the Clean Air Act regulates sources that emit either 100 tpy or 250 tpy of a given pollutant. USEPA raised policy arguments to justify its rejection of this express language under the Clean Air Act (among them, the “absurd results” doctrine), but ignoring express statutory language is always a tricky business.

Assuming petitioners prevail on this issue and the Tailoring Rule is vacated (as opposed to remanded with Tailoring Rule left in place during reconsideration), what is the possible outcome? Ironically for the industry petitioners, the effect of reversing the Tailoring Rule means that many more sources would be subject to GHG regulation under the Clean Air Act. In fact, if the Tailoring Rule is completely abrogated, every source that emits more than 100 or 250 tpy of CO2E would be potentially subject to regulation under the Clean Air Act. This would be expensive to industry and potentially overwhelming to USEPA, at least from a paperwork standpoint.

But industry beware: a decision vacating the Tailoring Rule (or the GHG PSD Rule or the Timing Rule) would not affect USEPA’s authority to regulate GHGs under the New Source Performance Standards (NSPS) under Clean Air Act § 111. This is because the Tailoring Rule and the Timing Rule are linked to the PSD Rule but USEPA’s NSPS authority exists independent of any PSD authority. NSPS for GHGs have not been finalized yet but are expected in 2012. NSPS are promulgated sector by sector and USEPA is slated to finalize NSPS that include GHGs for the utility and refinery sectors this year. In fact, USEPA is under a court ordered settlement to do so. Thus, even a complete victory by petitioners under the GHG PSD Rule does not abrogate USEPA’s authority to regulate GHG emissions from stationary sources under the Clean Air Act

A decision by the D.C. Circuit panel is expected as soon as June of this year. 

1. Offshore Wind Power Generation (Robert Vilter, New York)

The Obama Administration is pursuing the development of 10 gigawatts of offshore wind-generating capacity by 2020, and 54 gigawatts by 2030. This would produce enough energy to power 2.8 million and 15.2 million homes, respectively. However, because of complicated and overlapping federal and state regulations, it takes anywhere from seven to 10 years to receive approvals and to fully permit an offshore wind project – more than double the amount of time it takes to permit an offshore oil or natural gas platform. The U.S. Department of the Interior has announced a “Smart from the Start” wind energy initiative to facilitate siting, leasing and construction of new projects in an effort to shorten this time line. Keep in mind that offshore wind farms, such as Cape Wind, also face local hurdles to development, oftentimes in the form of opposition by well-funded citizen groups.

2. Renewable Energy Incentive Programs (Arnold Grant, Chicago)

The cash grant program enacted under Section 1603 of American Recovery and Reinvestment Act in order to help renewable energy developers has expired except for projects that (i) began construction before January 1, 2012, and (ii) are placed in service before a specified date. The date varies depending on the type of project. The major remaining federal tax benefits are the energy tax credit under IRC Section 48, the production tax credit under IRC Section 45, and accelerated tax depreciation under IRC Section 168. Various structures are available to help renewable energy developers monetize these incentives.

3. Hydraulic Fracturing Regulation (Larry Demase, Pittsburgh)

Hydraulic fracturing or “fracking” is a practice of stimulating and maximizing production of natural gas in shale formations that has been in use in the United States for more than 50 years, but which has recently gained public attention. It involves pumping, under high pressure, a mixture of very large quantities of water and very small quantities of chemicals and proppants to create fissures in the shale and to hold fissures open so that gas will flow in greater quantities to the well bore. The controversy over its use concerns the amount of water being withdrawn from ground and surface resources, alleged contamination of drinking water from the fracking fluid and the disposal and treatment of waste water. In 2011 the U.S. Environmental Protection Agency (EPA) announced it will study the impacts of hydraulic fracturing on drinking water resources. The results of EPA’s study are intended to provide decision makers with some answers to fundamental questions about the effect of fracking on drinking water. The results will also no doubt be the impetus for regulatory and policy changes that could have a significant impact on the shale gas industry. A panel of experts will analyze the effect of fracking using reported cases of alleged groundwater contamination, laboratory studies, toxicological assessments of chemicals used in hydraulic fracturing, their degradation and/or reaction products, and naturally occurring substances that may be released or mobilized as a result of fracking.

There will be two reports resulting from EPA’s study with the first to be completed in 2012. An additional report based on long term study projects is to be issued in 2014. In the meantime, look for states to address these issues in various ways.

4. Aggregation (Larry Demase, Pittsburgh)

As we’ve discussed in previous posts, aggregation is the process of determining whether emissions from multiple operations should be aggregated into a single source for air permitting purposes. A significant issue related to oil and gas operations is whether emissions from individual operations, such as wells, processing plants and compressor stations, should be combined so that they become major sources for permitting purposes, subject to Title V requirements and New Source Review.

In 2011, a number of public interest groups challenged air permits issued by the Pennsylvania Department of Environmental Protection (DEP) on the grounds that DEP should have included multiple sources of emissions in those permits so that they would be considered “major” permits. The Clean Air Council, Group Against Smog and Pollution, and Citizens for Pennsylvania’s Future have asserted before the Pennsylvania Environmental Hearing Board and the United States District Court for the Middle District of Pennsylvania, that DEP failed to properly apply the three-part test for deciding whether sources should be “aggregated” together for permitting purposes. One case asserts that the permittee should be penalized for failing to submit an “aggregated” permit application. Decisions in these cases could result in precedents that will impact development of the shale gas industry in Pennsylvania.

Initial decisions in all three cases are expected in 2012, but final results could be extended if the losing parties seek appeals.

5. Greenhouse Gas Litigation (Jennifer Smokelin, Pittsburgh)

Regarding greenhouse gas (GHG) litigation, there are two main areas to watch in 2012: (i) the United States Supreme Court (and the Ninth Circuit) in the aftermath of American Electric Power v. Connecticut (AEP), and (ii) four consolidated cases in the D.C. Circuit challenging the endangerment finding slated for argument at the end of February.

Before the Supreme Court ruled in Massachusetts v. EPA, certain states sued the nation’s five largest coal-fired electric power corporations in the Southern District of New York under federal and state common law, charging AEP and other defendants with contributing to the public nuisance of global warming and seeking an injunction to cap and reduce their carbon dioxide emissions. The AEP Court voted unanimously that federal common law had been “displaced” by the Clean Air Act (and the Obama Administration’s efforts to regulate emissions), and thus states cannot use federal common law to restrict greenhouse gas emissions. The AEP ruling leaves open the question of (i) whether states can sue under state law, and (ii) whether climate change victims can seek damages through the courts. The issues are likely to be litigated in 2012 in a case, Kivalina v. Exxon Mobil.

Following the decision in Massachusetts v. EPA, but before AEP was decided in the U.S. Supreme Court: (i) EPA published two endangerment findings under the Clean Air Act, triggering a mandatory duty for EPA to adopt regulations to control emissions from power plants, industries, motor vehicles, and other sources; (ii) EPA issued tailpipe emission standards for new cars and trucks under the Clean Air Act; and (iii) EPA issued Best Available Control Technology (BACT) guidance for new sources and New Source Performance Standards (NSPS) for existing sources of GHG emissions under the Clean Air Act. Four cases are consolidated in the D.C. Circuit that challenge EPA’s Endangerment Findings. The cases are Coalition for Responsible Regulation Inc., et al. v. EPA, case numbers 09-1322, 10-1092 and 10-1073; and American Chemistry Council v. EPA, case number 10-1167, in the U.S. Court of Appeals for the District of Columbia Circuit. Argument will take place February 28 and 29, 2012. This is a very complex series of cases that will affect not only utilities but many other industries as well, since the fundamental underpinning to all GHG regulation under the Clean Air Act is essentially up for review.

6. California’s Cap-and-Trade Program (Todd Maiden, San Francisco)

In October 2011, the California Air Resources Board approved final regulations implementing a “cap-and-trade” program under the state’s climate law (more commonly referred to by its legislative bill number, “AB 32”). These regulations became effective January 1, 2012, and many consider California a possible test case for similar programs in other parts of the country. Regulated entities under the first phase of this program include utilities and large industrial facilities (i.e., emitters of greater than 25,000 metric tons of CO2 equivalent per year). The regulations trigger two 2012 auctions for buying and selling rights to emit, and requires entities to comply with a series of progressively stringent emission caps beginning January 2013.

7. California's Green Chemistry Initiative (Todd Maiden, San Francisco)

In October 2011, California’s Department of Toxic Substances Control (DTSC ) released revised “informal” draft regulations of its Green Chemistry initiative titled the “Safer Consumer Products Regulation.” DTSC’s new informal draft makes substantial changes, specifically in the areas of timeframes, the prioritization of chemicals and products, alternative assessment compliance, and exemptions. The informal draft also significantly broadens the chemicals that will initially be regulated to include an estimated 3,000 Chemicals of Concern without limits on which product categories may initially be considered. These draft regulations are highly controversial, yet DTSC is projecting that it will likely finalize these regulations – or something close to them – in spring 2012.

In a related development, California’s Office of Environmental Health Hazard Assessment recently finalized separate regulations that regulate the hazard traits in chemicals of concern. While finalized, these regulations remain controversial within the regulated community, and we anticipate administrative or litigation challenges to these regulations as well.

8. New Mercury Standards for Coal and Oil-Burning Power Plants (Douglas Everette, Washington, D.C.)

The final version of EPA's Mercury and Air Toxics Standards, or MATS rule, was signed December 21, 2011. For the first time in history, power plants will have to reduce all of their air toxic emissions, not just mercury, arsenic and lead – but a wide range of toxic chemicals. For coal-fired generators, the MATS rule sets emissions limits for mercury, particulate matter (a surrogate for toxic metals), and hydrogen chloride (a surrogate for acid gases). For oil-fired units, limits are set for particulate matter, hydrogen chloride and hydrogen fluoride. Also revised are new source performance standards for power plants to address emissions of particulate matter, sulfur dioxide and nitrogen oxides. According to EPA, approximately 1,400 existing coal and oil-fired units are affected. Existing sources are required to comply within three years of the effective date of the MATS rule, with case-by-case extensions up to five years beyond the effective date for documented electric reliability issues. These extensions are not offered to new or reconstructed sources. Vigorous debate centers on the practical implementation of the MATS rule deadlines and whether the electric grid will have enough capacity to avoid outages stemming from coal power plant retirements.

9. Fallout from Burlington Northern and Santa Fe Railway Co. v. U.S. (Robert Frank, Philadelphia)

In Burlington Northern and Santa Fe Railway Co. v. United States (BNSF), 556 U.S. 599 (2009), the U.S Supreme Court decided two key issues for parties facing Superfund liability: the standard for establishing “arranger” liability and the standard for establishing divisibility of liability. Since then, more than 100 courts have cited the decision. On arranger liability, including two at the federal appellate level, the cases illustrate that courts are following the Supreme Court’s directive to conduct a fact-intensive inquiry into a defendant’s purported “intent” to dispose of a hazardous substance. It’s fair to say that courts have been more reluctant to establish liability under an arranger theory than in the era preceding BNSF and look for that trend to continue in 2012.

For example, last year, the Ninth Circuit issued its first “arranger” liability decision under CERCLA since being reversed by the Supreme Court in the 2009 Burlington Northern decision.

In Team Enterprises, LLC v. Western Investment Real Estate Trust, 647 F.3d 901 (9th Cir. 2011), plaintiff argued that the requisite "intent to dispose" element necessary to trigger CERCLA arranger liability could be inferred from the fact that the dry cleaning machine was designed in a way that made disposal inevitable. Plaintiff also argued that the fact that the manufacturer exercised control over the disposal process provided a sufficient basis to infer the requisite intent necessary to trigger CERCLA arranger liability. The Ninth Circuit held that a manufacturer of equipment used to recycle wastewater from dry cleaning machines, as a matter of law, had neither the intent nor the control necessary to be held liable as an arranger. The court held that, to sustain an arranger claim against a “company selling a product that uses and/or generates a hazardous substance as part of its operation,” the plaintiff must prove “that the company entered into the relevant transaction with the specific purpose of disposing of a hazardous substance.” The holding underscores the high bar plaintiffs must meet in order to establish CERCLA arranger liability following the BNSF decision.

Regarding divisibility, there have been fewer cases applying the Supreme Court’s divisibility holding in BNSF. Generally, the courts looking at whether a “reasonable basis” for apportionment exists have reviewed the evidence that defendants have submitted to determine whether they have met their burden of proof. These cases have been very fact-intensive and, so far, it is difficult to identify a trend.

10. Final Rules for Conflict Minerals (David Wagner, Pittsburgh)

Section 1502 of the Dodd-Frank Act requires the Securities and Exchange Commission (SEC) to issue disclosure and reporting regulations regarding manufacturers’ use of conflict minerals from the Democratic Republic of Congo (DRC) and adjoining countries. The SEC was required to issue its conflicts minerals rules last year but missed the deadline. Look for the final rules – and plenty of implementation concerns – sometime in 2012. The legislation for conflict minerals is part of a broader multilateral effort to require manufacturers and other users of certain minerals to closely track and publicly disclose where their raw materials originate. It is designed to suppress end-use demand for minerals produced in certain high-risk areas where minerals operations and revenues have been linked to violent and repressive rebel groups.

The law focuses on forcing supply chain transparency for users of certain minerals (which are used primarily in electronic components, engine components, aerospace equipment, jewelry and other industries). It does not directly impose restrictions on mining or metals companies, or create any sort of embargo on the DRC.

Mining and the NPDES Program

In particular, the guidance document seeks to ensure that mining projects are properly permitted under the requirements of the CWA's National Pollutant Discharge Elimination System (NPDES). (A quick aside: all of the states in the Appalachian coal mining region are currently authorized by USEPA to administer the NPDES program.) The CWA and USEPA’s implementing regulations require that NPDES permits contain (1) technology-based effluent limitations, which represent the degree of control that can be achieved by point sources using various specified levels of pollution control technology; and (2) more stringent limitations, commonly known as water quality-based effluent limits, when necessary to ensure that the receiving waters meet applicable water quality standards. During reviews of the NPDES permits issued over the last few years for surface-mining projects in the Appalachian region, USEPA identified concerns about how effectively states were achieving the necessary protection of the receiving streams, and concluded that states could be more effective in gathering water quality data and documenting their permitting processes. As a result, the new guidance identifies key elements which should be evaluated by states to ensure compliance with CWA requirements. USEPA identified the following elements that should be evaluated and documented as part of the permitting process:

• Effluent and Receiving Water Characterization - USEPA recommends that states utilize their broad authority granted under the CWA to require permittees to provide sufficient data to fully characterize their proposed discharges, and to utilize all available ambient water quality and biological data on receiving streams in permit development.
• Reasonable Potential Evaluation - The CWA and USEPA regulations require regulation of all pollutants which have the reasonable potential to cause or contribute to an excursion above any applicable water quality standard. USEPA notes that permitting authorities should use all available guidance and resources to develop appropriate limitations to protect water quality standards.
• Develop Appropriate Permit Limitations - Appropriate limitations may include chemical specific limitations, limitations based upon whole effluent toxicity, limitations based upon bioassessment procedures, and/or best management practices.

Future Mining Activities and Total Dissolved Solids

The issue which could potentially have the largest impact on future mining activities is the issue of Total Dissolved Solids (TDS). TDS consists of dissolved minerals such as chlorides and sulfates, and at high concentrations, TDS constitutants are toxic to aquatic organisms. In the guidance document, USEPA notes that of the Appalachian states, only Pennsylvania and Ohio have numeric criteria which specifically regulate the discharge of dissolved solids. USEPA identifies a TDS level (as measured by conductivity) of 300 μS/cm as an appropriate protective level for instream concentrations. If states properly implement regulations limiting the discharge of dissolved solids, it will likely have a dramatic impact on the ability of mining companies to obtain a discharge permit. Removal of dissolved solids from water entails significant investment, both in capital and operating costs.

Strategies for Reviewing Section 404 Permits

Surface mining activities are also regulated under Section 404 of the CWA for the discharge of dredge or fill material into the waters of the United States. Permits are issued by the USACE, with review and approval by USEPA. The guidance document provides detailed strategies for regulators in USEPA Regions 3, 4 and 5 to use in reviewing Section 404 permits and ensuring that proposed permits are in compliance with the requirements of the CWA and state requirements on water quality. Of particular interest is the discussion regarding control of dissolved solids under a Section 404 permit, where the NPDES permit issued by the State may not be sufficiently protective. This creates the possibility that future control of dissolved solids could incorporated at the federal level, as opposed to the state level.
 

You’ll recall that on December 10, 2010, USEPA finalized a rule under the Safe Drinking Water Act’s Underground Injection Control Program (SDWA UIC Program) to create a new class of injection wells (Class VI) for geological sequestration of CO2. The new rule does not currently address the long-standing concern that owners and operators of Class VI wells could be liable under RCRA for environmental contamination should CO2 that meets the definition of a hazardous waste leak from the wells and contaminate underground sources of drinking water. The draft proposed rule before OMB explores a number of options, including a conditional exemption from the RCRA requirements for hazardous CO2 streams in order to facilitate implementation of geologic sequestration while protecting human health and the environment.

A CO2 Stream with Impurities Could Trigger RCRA Requirements

Under USEPA’s regulations, a solid waste is a hazardous waste if, among other things, it exhibits the characteristics of toxicity. While a CO2 stream is not itself a listed hazardous waste, captured CO2 could contain some impurities at levels that would require its classification as a “characteristic” hazardous waste. CO2 captured from sectors amenable to CCS, such as electric generating facilities, could contain toxic chemical constituents including arsenic, mercury, and selenium. A captured CO2 stream that meets the definition of a hazardous waste would have to comply with all applicable RCRA requirements.

As a result, the characterization of a CO2 stream as “hazardous waste” would make the RCRA waste management scheme applicable to the generation, transportation, treatment, sequestration, and/or disposal of the CO2 stream. Presumably, this could mean that underground injection and sequestration of a hazardous CO2 stream would need to meet the requirements for Class I hazardous waste wells under the SDWA UIC Program instead of the Class VI geologic sequestration wells.

But Not if the CO2 Stream is Exempt from RCRA

The draft proposed rule is not publically available, but an exemption from RCRA might allow the injection of a “characteristically” hazardous CO2 stream for the purpose of geologic sequestration to be permitted under the Class VI injection well requirements instead of Class I requirements. Interestingly, an exemption from RCRA could close a potential (and overlooked) gap that would enable owners and operators of CO2 sequestration wells to seek Class I well permits in order circumvent the stringent post-closure monitoring, care, and financial responsibility requirements imposed by the Class VI rules. On the other hand, owners and operators of CO2 sequestration wells would be able to avoid the complexities and inefficiencies of the RCRA regulatory regime. Most importantly, the exemption would provide much desired regulatory certainty to the CCS industry. Stay tuned.

Moreover, the November 22, 2010 rulemaking is just phase 1 of USEPA's evaluation, and more non-attainment determinations are expected next year. In order to collect and evaluate additional monitoring data, USEPA put off a final decision on many areas of the country until October 15, 2011. The second phase of the rulemaking may greatly increase the number of areas considered to be in non-attainment. For example, in USEPA Region 3 (Delaware, District of Columbia, Maryland, Pennsylvania, Virginia, and West Virginia), USEPA only identified non-attainment regions for the Commonwealth of Pennsylvania. All other states within Region 3 were deferred until October 2011.

In 2008, USEPA revised the National Ambient Air Quality Standards for lead and lowered the standard from a level of 1.5 μg/m3 to a level of 0.15 μg/m3. In addition, the Administrator changed the averaging time and form of the standard to a rolling 3-month average evaluated over a 3-year period. The rule also established new requirements for lead monitoring networks, including the requirement that new lead monitors be located in close proximity to the largest lead emissions sources by January 1, 2010. The final rule revising the lead NAAQS was published in the Federal Register on November 12, 2008, and became effective January 12, 2009.

The EPA estimates that the new program will apply to approximately 10,000 facilities and cover approximately 85% of all GHG emissions in the United States. Similar to the California mandatory GHG reporting program, which began earlier this year, applicability is determined by source category and/or emissions levels. In general, suppliers of fossil fuels and industrial greenhouse gases, manufacturers of vehicles and engines, and facilities that emit 25,000 metric tons or more per year of GHG emissions are required to submit annual reports to the EPA under the rule. Key source categories excluded from the rule’s scope include electronics manufacturing, food processing, industrial landfills, coal suppliers, and wastewater treatment facilities. The EPA estimates that most small businesses will be excluded as well because their emissions will fall below the 25,000 metric ton threshold. How to report is obviously a big concern and the EPA has developed a general “Applicability Tool” to help emitters evaluate whether they are subject to the rule’s reporting requirements. An earlier posting on our blog also provided advice to facilities on how to establish that they do not have to report. That information can be found here.

In general, reporting is done on a facility level, even where there are multiple sources at one facility. Facility is broadly defined to include any plant, building, structure, source, or stationary equipment that is located on contiguous or adjacent property and under common control. The key exception to the facility-wide reporting requirement is that certain suppliers of fossil fuels as well as vehicle and engine manufacturers will report at the corporate level.

Specific gases to be reported include carbon dioxide (CO₂), methane (CH₄), nitrous oxide (N₂O), hydrofluorocarbons (HFC), perfluorocarbons (PFC), sulfur hexafluoride (SF₆), and other fluorinated gases including nitrogen trifluoride (NF₃) and hydrofluorinated ethers (HFE). The final rule sets forth specific methodologies for calculating emissions of these gases. The methodologies must be used, with only one exception. The EPA will allow the use of “best available data” for reporting between January and March 2010. Facilities can request an extension of the exception past March 2010 but the EPA has expressed that no extensions beyond December 2010 will be granted.

Unlike the California program, the final rule does not mandate third-party verification of the reported data. In California, third-party verification is required beginning in 2010. Under the nationwide program, however, reporters can self-certify their data, which will then be verified by the EPA.

EPA estimates that, for the first year of reporting, the annualized costs of reporting for the private sector will be approximately $115 million and that, for subsequent years, those costs will be reduced to $72 million.

The EPA is currently providing information about the new rule. For additional information, including specific applicability and reporting questions, please contact the Reed Smith lawyer with whom you regularly work.

The report, prepared by the TSCA Interagency Testing Committee (ITC), stated EPA’s intent to develop a proposed TSCA Section 8(a) rule to obtain information on the production, uses, and exposures of existing nanoscale materials. The ITC was established to make recommendations to the EPA Administrator regarding chemical substances and mixtures to which EPA should give priority consideration for testing under Section 4 of TSCA, which gives EPA the authority to require chemical manufacturers and processors to test chemical substances and mixtures. 

The report identified the need for additional data for the following nanoscale materials: fullerenes; carbon black; titanium oxide nanowires; titanium oxide nanoparticles; zinc oxide; nanosilver; single–walled carbon nanotubes; multi–walled carbon nanotubes; carbon nanofibers; nanoceramic particles; and nanoclays. The report added that “EPA has indicated that it will ensure that the chemicals where there is ITC interest as described in this [report] are either included in [the proposed Section 8(a) rule] or are otherwise new chemical substances subject to premanufacture notification (PMN) reporting under TSCA.  EPA also intends to develop a proposed TSCA Section 4 rule to develop needed environmental, health, and safety data.” 

Comments on the notice are due by September 3, 2009.

A complete review -- including White House consent -- is expected to be completed by April 10 and the proposal officially signed by EPA Administrator on April 16, according an internal document presented to White House officials earlier this month and leaked to the news media. The endangerment proposal would be subjected to a 60-day public comment period after publication in the Federal Register on April 30 before moving into the final rule stage.

A review of the leaked internal EPA documents on this issue reveals that the endangerment finding proposes to address all six GHGs listed under the Kyoto Protocol as a group (rather than individually) and not just the four transportation-related GHGs. As a practical matter, the finding would pave the way for federal regulation of motor vehicle emissions of GHGs but it could also have ramifications for the future regulation of GHGs from all stationary sources under the CAA, including power plants, oil refineries, cement plants and other factories.

The court also found that EPA had failed to adequately consider whether a lower limit was necessary to protect children the from adverse health effects of fine particulates, and that the secondary standard for fine particulates, which also went against CASAC’s recommendations, was inadequately justified. The distinction between primary and secondary standards is that the former addresses the health effects of a particular pollutant, while the latter addresses “welfare” effects. For particulate matter, the “welfare” aspect in question was visibility. Finally, the court upheld a separate challenge by farm industry groups to the coarse particulate matter standards. 

The immediate impact of the court’s decision will be negligible because the rule was remanded to EPA and the 2006 standards were left in place pending either the formulation of a new rule or an adequate justification by the agency of the original one. However, given the change in administration, a new rule likely will eventually emerge, and it will be more stringent than the 2006 version.

EPA’s Arguments in Petition for Rehearing

On Friday, Sept. 26, 2008, the EPA filed a Petition for Rehearing or Rehearing, en banc of the decision, contending that the panel committed four serious errors warranting withdrawal of the original panel and a new look at the issues either by the three-judge panel, or by the entire Circuit Court of Appeals en banc. 

First, the court had imposed a remedy unsought (and not briefed) by the parties. As we observed in our July E-flash, none of the petitioners had asked the court to vacate CAIR in its entirety. Accordingly, the EPA had not briefed the issue, and in the Petition for Rehearing, asks for the opportunity to do so now. The EPA hopes to show that remanding CAIR would be a preferred remedy.

Second, the court erred by finding CAIR inconsistent with the Act although it had affirmed other, similar programs.  The court had invalidated CAIR because the rule envisaged controlling the upwind generation of sulfur dioxide (SO₂) and nitrogen oxides (NO_x) – the chemical precursors of small particulates (PM_2.5) and ozone – by a cap and trade scheme within multistate regions. The court found that this approach was inconsistent with the Clean Air Act (“Act”), because it failed to ensure that the proposed trading program would prohibit sources within a particular upwind state from contributing significantly to nonattainment or interfering with maintenance of attainment of National Ambient Air Quality Standards (NAAQS) in affected downwind states.

In its Petition for Rehearing, the EPA contends that the court had erred because the CAIR approach was consistent with the Act, and the court had approved a similar regional cap and trade approach in Michigan v. Environmental Protection Agency, 213 F.3d 663 (D.C. Cir. 2000), which addressed a challenge to the EPA’s NO_x SIP call. 

Third, the court erred by holding that the EPA lacked authority to interfere with SO₂ allowances. The EPA asks for reconsideration of the court’s determination that in mandating the retirement of SO₂ allowances under the acid rain program established by Title IV of the Act, CAIR interfered with a congressionally mandated program. The EPA contends that the Act allows for further regulation of SO₂ pursuant to other Titles of the Act. 

Fourth, the court erred by rejecting EPA’s approach to allocating NO_x allowances. The EPA is asking the Court to reconsider its finding that CAIR’s approach to allocating initial state NO_x allowances – in part based on the mix of fuels used by electrical generating facilities within a state – was based on impermissible considerations. 

Certain Holdings Not Challenged by EPA

Three aspects of the original North Carolina decision are unchallenged, although they could be changed if rehearing is granted. These are: (i) the court’s ruling that EPA must consider the effect of upwind SO₂ and NO_x on interference with the ability of downwind states to maintain compliance with NAAQS; (ii) the 2015 final date for implementation of CAIR, which the court found arbitrary because downwind states were required to meet their NAAQS targets by 2010; and (iii) reconsideration of the inclusion of Minnesota within CAIR. The EPA argues that the case should be remanded so that CAIR can be appropriately revised, but asserts that the original rule should be restored in the interim because of the effect that the vacation of CAIR will have on health, the environment and the economy. 

Rehearing Process

The great majority of petitions for panel rehearing and petitions for rehearing en banc are denied. Under the Federal Rules of Appellate Procedure, the opposing parties are not permitted to file a response to the petition unless it is requested by the court. The court does not normally grant rehearing without giving the parties who prevailed originally the opportunity to respond. 

The Possibility of a Legislative Solution

While there is substantial bipartisan support in Congress for a legislative solution, especially one that will authorize the first round of CAIR-mandated emission reductions to go forward, EPA’s representatives are pessimistic that any such legislation will emerge in this session of Congress or in the next. Meanwhile the Clean Air Act’s deadline for health-based standards is less than two years in the future, so it is possible – even likely – that in the absence of CAIR, the states will impose their own emission limits on electrical generating units.