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

1.         The Start of USEPA’s “Tailoring” Rule

Despite a lot of buzz, proposed bills and speculation, the U.S. Congress failed to comprehensively address GHG emissions last year. In filling the void, USEPA has taken several steps to regulate GHGs, including promulgation of the Tailoring Rule, the first rule under the stationary source provisions of the Clean Air Act controlling GHG emissions. It applies only to new and modified sources; certain larger GHG emission sources will be subject to permitting requirements for planned construction projects under the Tailoring Rule starting January 2, 2011. For further details on this and related issues, please contact Larry Demase, Lou Naugle, Todd Maiden, Harley Trice or Jennifer Smokelin.

2.         The Application of USEPA’s BACT Guidance for GHGs

USEPA recently released a key piece of the GHG permitting puzzle, a guidance entitled “PSD and Title V Permitting Guidance for Greenhouse Gases.” With the January 2011 implementation of the Tailoring Rule requiring large industrial sources to obtain permits for GHG emissions, this guidance aims to assist permitting authorities in enacting GHG permitting programs. In particular, the 97-page document addresses Prevention of Significant Deterioration (PSD) applicability to GHG and BACT (Best Available Control Technology), and other PSD requirements. The guidance also discusses Title V applicability requirements and GHGs, as well as permitting requirements for Title V permits with regard to GHGs. We’ve analyzed these BACT issues on our blog and discussed them in our quarterly climate change teleseminars. For further details on this and related issues, contact Larry Demase, Jennifer Smokelin or David Wagner.

3.         With the Defeat of AB 23 in California, the State Continues to Pursue Cap and Trade

Proposition 23 would have suspended California's Global Warming Solutions Act of 2006, also known as AB 32. AB 32 is one of the most aggressive and forward-thinking environmental laws in the United States, and sets targets to reduce greenhouse gas emissions to 1990 levels by 2020 and obtain 33 percent of the state’s power from renewable sources by 2020. California's voters’ rejection of a ballot measure to effectively suspend the implementation of AB 32 means California remains on track to issue aggressive cap and trade regulation of GHGs come 2012. For further details on this and related issues, contact Todd Maiden, John Lynn Smith, or Eric McLaughlin.

4.         SEC’s Corporate Disclosure Requirement Regarding Climate Change

Early last year, the Securities and Exchange Commission voted to adopt interpretive guidance addressing public company disclosure standards in connection with climate change. While this interpretive guidance is not intended to impose new standards, it continues to serve as an important reminder for public companies, potentially as part of their disclosure controls and procedures, to assess whether climate change may have a material impact upon their business and financial condition. For further details on this and related issues, contact Lou Naugle or Jennifer Smokelin.

5.         Following COP Failures in 2009 and 2010, Will 2011 Reverse the Trend?

This United Nations-sponsored conference of the parties (“COP”) in Copenhagen at the end of 2009 (also know as COP 15, as the 15th conference of parties under the UNFCCC) was thought to be the vehicle for a treaty on the reduction of GHG gases, but produced almost no significant results. Further, last month’s COP 16 did not seem to make any significant progress on major issues, but it did serve to affirm the UN as the venue for international climate action. With several UN climate meetings in 2011, including COP 17, we’ll again look for significant international agreement on climate issues in 2011. For further details on this and related issues, contact Larry Demase, Jennifer Smokelin or David Wagner.

6.         Increasing Interest in Regulations Related to Carbon Capture and Storage

Although carbon dioxide (CO2) is a valuable and marketable commodity, there are several barriers to the near-term deployment of commercial-scale carbon capture and storage (CCS) projects in the United States. They include cost and the related lack of economic drivers, regulatory uncertainty, and an inadequate legal framework for CCS. There is, however, a growing federal interest in CCS, and Jennifer Smokelin recently discussed a few examples of this interest, including USEPA’s BACT guidance and a GHG reporting rule. In particular, a USEPA rule requires permit holders to create a CO2 monitoring, reporting and verification plan, and to report the amount of CO2 sequestered using a mass balance approach under the Clean Air Act. Regulated entities must collect data in 2011 and begin submitting reports to USEPA by March 31, 2012. Also, in 2011, look for more CCS activity on the state level, including recommendations in support of a comprehensive legal/regulatory framework for permitting proposed CCS projects in California. Internationally, we expect the International Energy Agency to work with countries to implement its CCS Model Regulatory Framework. To learn more about CCS issues, please contact Jennifer Smokelin or David Wagner.

7.         Mandatory GHG Emission Monitoring and Reporting Requirements

GHG reporting requirements from certain sources that emit 25,000 metric tons or more of GHGs per year are due March 31, 2011. Douglas Everette addressed issues and problems to consider regarding GHG emissions monitoring and reporting in Reed Smith's 4th Quarter Climate Change Report. In addition to this rule and the GHG reporting requirements related to carbon capture and sequestration (discussed above), USEPA finalized a rule that requires the annual reporting of GHG emissions from qualifying facilities in the upstream oil and natural gas sector, including onshore production. USEPA is operating on an expedited timetable, requiring applicable industries under these rules to begin collecting data January 1, 2011, and begin submitting the first round of reports to USEPA by March 31, 2012. For more information on the rules, please go to Jennifer Smokelin’s post or send her an email.

8.         Single Stationary Source Determinations for Oil and Gas Operations

Here’s an air issue of particular relevance to Marcellus Shale well sites: whether and to what extent air emissions from the exploration, extraction and production activities related to well sites should be aggregated. The aggregation of gas (and oil) activities by regulatory bodies will influence whether they must obtain a minor source permit or a major source permit for purposes of Title V permitting, new source review and prevention of significant deterioration. With respect to Marcellus Shale, the pollutant-emitting activities include individual compressor stations, such as internal combustion engines, boilers, and emergency generators, and multiple compressor stations connected by pipelines. In 2011, aggregation will be an issue related to USEPA’s upcoming air quality standards for ozone and fine particulate matter (PM 2.5), technical guidance developed on the state level (including by Pennsylvania’s Department of Environmental Protection), and the scope of the federal requirement to report GHG emissions for “all petroleum and natural gas equipment … located in a single hydrocarbon basin.” To discuss these issues, please contact Lou Naugle, Larry Demase, Jennifer Smokelin or David Wagner. 

9.         For the First Time, USEPA Will Issue GHG Emission Standards

Under a recent settlement filed in federal appeals court, USEPA will propose GHG emissions standards for power plants by July 2011 and for refineries by December 2011. The standards, known as New Source Performance Standards, would set the level of GHG emissions new facilities may emit and also address emissions from existing facilities. For more information, contact Larry Demase, Lou Naugle or Jennifer Smokelin, or visit Larry’s blog post on this development.

10.       With the Approval of the Cape Wind Renewable Energy Project in Nantucket Sound, Other Approvals Are Expected in Late 2011

In early 2010, the federal government approved the Cape Wind energy project in Nantucket Sound, a $1 billion wind farm in the U.S. Outer Continental Shelf. According to the government, the Cape Wind project will generate enough power to meet 75 percent of the electricity demand for Cape Cod, Martha's Vineyard and Nantucket Island combined, and, as compared with conventional power plants, will cut carbon dioxide emissions by 700,000 tons each year. Building on the Cape Wind lease, the U.S. Department of the Interior announced in November that it would work quickly to identify priority areas and expedite leases for offshore wind projects in the Atlantic Ocean. The first leases are expected to be offered in Maryland, Delaware, New Jersey, Virginia, Rhode Island and Massachusetts waters by the end of 2011, to be followed shortly thereafter by New York, Maine, North Carolina, South Carolina and Georgia. For questions related to this issue, including applications for offshore transmission lines, please contact Larry Demase or David Wagner.

11.       The Clean Development Mechanism and the Uncertainty in the Carbon Markets Created by HFCs

The United Nations’ Clean Development Mechanisn (CDM) allows industrialized countries to invest in emission reductions wherever it is cheapest globally, and certified emission reductions (CERs) are a type of carbon credit issued by the CDM Executive Board for emission reductions achieved by CDM projects.  In late November, the CDM Executive Board decided to revise the rules governing hydrofluorocarbon-23 (HFC-23) destruction on the basis that carbon credits related to HFC-23 are creating windfall profits and threatening the integrity of the carbon market.  The CDM Executive Board’s decision came just days after a European Commission proposal to ban the use of HFC-23 in the EU Emissions Trading Scheme as of January 2013. The Commission explained that “the acceptance of credits from industrial-gas projects has been controversial for some time. Certain gases [such as HFC-23] have a very high global-warming potential, and abatement is very cheap. This can create huge financial rewards for project developers.” A majority of CERs issued to date have come from HFC-23 projects, mostly in China and India, and these two countries, especially China, are not happy. As Larry Demase anticipated in Reed Smith's 3rd Quarter Climate Change Report, this issue is creating significant uncertainty and it could have a destabilizing effect on the CER market. To learn more, please contact Larry Demase or Jennifer Smokelin.

Future of the Kyoto Protocol

As background, the Kyoto Protocol is the binding international agreement regarding greenhouse gas emissions and is the framework for international reduction of such emissions. The protocol was signed at COP 3 with the signatures of (now) 121 countries. The agreement sets binding greenhouse gas emissions targets for 37 industrialized countries including the European Union in a first phase from 2008-2012. Because it is legally binding it has been instrumental in framing countries’ legal response to climate change – like the EU ETS, Europe’s cap and trade system. But what happens after 2012?

At COP 16, there was clearly a divide between rich and poor countries over the future of the Kyoto protocol after 2012. Maintaining Kyoto is crucial to the future of the Clean Development Mechanism and the offset market, such as LULUCF and REDD+. The Kyoto Protocol is the connecting tissue on all the international GHG framework issues –if it falls (like a house of cards) so do the rest.

From the get-go of COP16 it was clear there was disagreement with regard to the future of the Kyoto Protocol. The crisis over Kyoto erupted at the start of the talks when Japan said it was not prepared to sign on to a second phase of the agreement without commitments on reducing emissions from emerging economies such as India and China because without these other economies, the Kyoto Protocol only committed 30% of the world’s GHG emission to any sort of emission reduction. By the end of COP16, Japan softened its position but Russia and Canada became even more forceful about scrapping Kyoto – meaning that if all three backed out, only 18% of global carbon emissions would be covered by the second phase of the Kyoto Protocol. 18% is not enough to do any sort of good from a climate standpoint.

Midway through the second week, EU and a group of small island Pacific states jointly proposed a new international treaty at the talks to commit developing and developed countries to reducing their climate emissions. The move outraged many developing countries, including China, Brazil and India, who fear that rich countries will use the proposal to lay the foundations to ditch the Kyoto protocol and replace it with a much weaker alternative

In the end the continued resistance by some countries to the Kyoto Protocol was a stumbling block for any meaningful and comprehensive reduction agreements. Still, negotiators finally found a compromise in the Cancun Agreements and, late into the night, delegates cheered speeches from governments that been demanding during negotiations – as, one by one, they endorsed the final draft. However, not much concrete was actually agreed to. The Cancun Agreements state that countries will “aim to complete” work about extending the Kyoto Protocol “as early as possible and in time to ensure that there is no gap between the first and second commitment periods.” Developed nations will consider extending the Kyoto Protocol, but only as part of a wider agreement that commits all countries to making emissions cuts. The text refers to findings by the UN panel of climate scientists that greenhouse gas emissions by developed nations would have to fall by between 25 and 40 percent below 1990 levels by 2020 to avoid the worst damage

Green Climate Fund

The debate over the future of the Kyoto agreement was not the only potential breaking point in the talks. The US climate envoy, Todd Stern, was accused of blocking a deal on the Green Climate Fund by insisting the details be fully worked out at Cancún – instead of deferred to the next set of climate negotiations. If you recall, the Copenhagen Accord (negotiated at COP 15) created the Green Climate Fund, where developed nations promised new funds "approaching $30 billion for 2010-2012" to help developing countries. In the longer term, "developed countries commit to a goal of mobilizing jointly $100 billion a year by 2020." However, the Copenhagen Accord was never formally adopted by the UNFCCC congress and the Copenhagen Accord avoided the crucial point of how to fund this Green Climate Fund, particularly the long-term $100 billion. Of the agreed $30 billion that was pledged since Copenhagen, only $8 billion has actually been committed to international climate change programs and only $4 billion has actually been received. Going into COP 16, a recent report from the high-level Advisory Group on Climate Change Finance convened by UN Secretary General Ban Ki-Moon found that while it will be challenging, the developed countries can meet their pledges.

The Cancun Agreements formally set up a financial structure or “Green Climate Fund” that provides funding and technology to less developed nations to stave off the threats posed by climate change. The Fund will manage the annual $100 billion pledged by developing countries at the Copenhagen COP, money that is to be handed out beginning in 2020.

In the Cancun Agreements, the structure of the fund is set out in detail, including governance, voting and accountability. The board will have 15 members from developed and 25 from developing countries. The World Bank is appointed to serve as Trustee for the first 3 years.

Going in to COP16, negotiators recognized the big problem in designing the Fund was giving its operational control to a body with significant financial proficiency, and identifying a financial caretaker for the fund that has the institutional capability to handle billions of dollars. The Cancun Agreements resolved the financial caretaker issue (World Bank), but didn’t advance significantly on the first part of the problem

CCS

Discussions on whether CO2 capture and storage (CCS) can be included under the Kyoto Protocol’s Clean Development Mechanism (CDM) have been underway since COP-10 in 2005. At each COP, a decision is often discussed and yet ultimately postponed, with Parties’ positions on support or opposition seeming immobile. At COP-16, on December 4th, the Subsidiary Body for Scientific and Technical Advice (SBSTA) proposed a draft decision that, while recognizing that there are issues with CCS and CDM, provided a new context that both respects the issues and establishes a process for resolving them. In contrast, previous decisions on this issue have simply listed concerns, framing the decision in a “yes” or “no” framework.

In the end, the COP parties adopted as one of the Cancun Agreements a decision that carbon dioxide capture and storage in geological formations is eligible as project activities under the clean development mechanism, provided that the issues identified at COP 15 (in decision 2/CMP.5, paragraph 29, to be exact) are resolved and the next SBSTA “elaborate modalities and procedures for the inclusion of carbon dioxide capture and storage in geological formations as project activities under the clean development mechanism, with a view to recommending a decision to the Conference of the Parties serving as the meeting of the Parties to the Kyoto Protocol at its seventh session (that is, COP 17)” Thus there is now a path towards getting CCS included under CDM.

REDD+

REDD+ (“reducing emissions from deforestation and (forest) degradation”) essentially supports developing countries financially and technically, to either prevent deforestation or regenerate forests through afforestation. The resulting carbon sequestration is aimed to reduce overall emissions, while the move itself will enable sustainable forestry and halt degradation. The negotiating language covering REDD+ was the most settled coming into Cancun.

The final language is a careful compromise among the parties. The negotiation points in COP 16 were limited to a few obstacles, specifically related to financing (see above) and whether REDD+ can be counted in countries'" Nationally Appropriate Mitigation Actions". The Cancun Agreements build an international system to reduce deforestation, another important step in officially adopting proposals from the Copenhagen Accord. For much of the developed world, REDD is being viewed as a mechanism to reduce global GHG emissions. At present, developed nations are facing severe economic and political roadblocks to implementing concrete emissions reduction targets through domestic legislation – they can use REDD credits instead to meet reduction targets. However, funding REDD remain unclear, particularly in the long term. As of now, REDD would be financed in an adhoc approach through seed funds set up by developed nations and through private sector voluntary carbon markets. When negotiators meet next year in South Africa they will need to add more substance to these efforts.

In sum, in Cancun 193 nations attempted to hammer out their differences and finalized the Cancun Agreements that alone will not solve global warming. The Cancun agreements did formalize many of the proposals of the Copenhagen Accord and establish a temperature target for climate change mitigation, an agreement on reducing emissions from deforestation and forest degradation (REDD), and the architecture for a climate green fund that apply to all parties and not just developed countries. Look for clarification on all these issues at the next COP. Most agree that REDD will rapidly move forward over the next few years with encouragement from developed nations (for the cheap offsets) and developing countries (for the preservation of forests and offset profit) that view REDD as a faster vehicle to control deforestation and GHGs, as well as a source of economic incentives to tackle clear cutting and forest fires.
 

Perhaps. It’s not like there aren’t significant decisions to be made this year. To discuss future commitments for industrialized countries under the Kyoto Protocol, the Conference of the Parties serving as the Meeting of the Parties to the Kyoto Protocol (CMP) established a working group in December 2005 called the Ad Hoc Working Group on Further Commitments for Annex I Parties under the Kyoto Protocol (AWG-KP). In Copenhagen, at its fifth session, the CMP requested the AWG-KP to deliver the results of its work for adoption by CMP 6 in Cancun.

At its thirteenth session in Bali, the COP launched a comprehensive process to enable the full, effective and sustained implementation of the UNFCCC through long-term cooperative action (LCA) now, up to and beyond 2010, in order to reach an agreed outcome and adopt a decision at its fifteenth session in Copenhagen. This process has been conducted under the Ad Hoc Working Group on Long-term Cooperative Action under the Convention (AWG-LCA). In Copenhagen, the COP decided to extend the mandate of the AWG-LCA to enable it to continue its work with a view to presenting the outcome to COP 16 for adoption. It is under the AWG-LCA that the Copenhagen Accord was reached at COP 15.

Like Last Year, the Environmental Law Resource Blog Will Provide Daily Updates of COP-16 Starting on November 30, 201.

With comprehensive climate legislation or even more-narrow energy legislation shelved in the United States there is little hope for any significant movement on a global climate change treaty this year – since most major nations will not agree to binding emission reduction in the face of inaction by the United States. This is frustrating to many world participants, particularly since it looks like US climate policy will not be making any significant strides towards placing a price on a ton of carbon in the wake of the recent elections. World leaders are therefore looking elsewhere – outside the UNFCCC process – to address climate issues. And where might they land? On a protocol, but not Kyoto – instead, some world leaders are looking to the Montreal Protocol to address global climate change. The Montreal Protocol was adopted in 1987 for a completely different purpose, to eliminate aerosols and other chemicals that were blowing a hole in the Earth’s protective ozone layers. And it has been amazingly successful at addressing this problem on a global level. The idea would be to use this successful template to address GHG emission – expanding the ozone treaty to phase out the production and use of the industrial chemicals known as hydro fluorocarbons or HFCs – one of the 6 Kyoto GHGS that has thousands of times the global warming potential of carbon dioxide. If the UNFCCC fails to address climate change, look to the Montreal Protocol to be expanded to address at least the high global warming potential GHGs under the Kyoto Protocol.
 

In the BACT Guidance, Some Things Were Expected

After reviewing the new BACT guidance and the reaction to it, most agree that it does not come as a surprise – for BACT, most expected a recommendation that states focus primarily on energy efficiency while still fully considering any new emerging technologies. We also expected a few other determinations. With regard to Title V, USEPA states that during the first six months of the Tailoring Rule, from January 2, 2011 to June 30, 2011 (“Step 1”), no sources will be subject to Title V permitting requirements solely on the basis of their greenhouse gas (GHG) emissions. Of course, sources that obtain a permit during this time period due to emissions of other pollutants will have to list any applicable PSD requirements for GHGs in their Title V permits. And beginning on July 1, 2011 (“Step 2”), all sources will have to obtain a Title V permit so long as they have the potential to emit 100,000 tons per year of carbon dioxide equivalent and 100 tons of GHGs on a mass basis (remember that sources have up to a year to apply for a Title V permit after commencing operations). Finally, USEPA reiterates that USEPA rules do not require sources to pay Title V fees based on GHG emissions.

Some Surprises in the BACT Guidance

A question is raised when an existing source, chugging along with no modifications, applies to for renewal of its Title V permit. What if the existing source submitted a renewal application, but has not been issued a renewed Title V permit and does not expect one before January 2, 2010. What provisos with regard to GHG emissions can USEPA insert into the draft permit once it is issued in Step 1?[1]

Absent state SIP revisions that address this issue, it appears the answer is none – but we caution that each renewal may require individual scrutiny. This is an issue not directly addressed by USEPA in the BACT guidance (or the Tailoring Rule, for that matter) – yet it is an area that affects the most sources (given the economy, there are certainly more renewals out there than new sources) and thus where the states (and sources) are desperately seeking guidance. It also appears that USEPA can not legally require a supplement to the application to include information regarding GHGs in Step 1.

USEPA’s failure to address GHG emissions in the permit renewal process is a surprise because the Tailoring Rule and the BACT Guidance both state that existing major sources that do nothing to change their operations will be subject to GHG regulation in Step 1 if the existing major source applies for, renews or revises its Title V permit. (Tailoring Rule, p. 54; BACT guidance p. 53 (emphasis added)). 

USEPA has said that Title V generally does not add new pollution control requirements but does require that each permit contain all “applicable requirements” under the Clean Air Act for the Title V source. Further, USEPA states that after January 2, 2010, a source will need to supplement its Title V permit application to include (1) citation and description of any “applicable requirements” (as defined 40 CFR 70.2) for GHG; (2) any information pertaining to monitoring or compliance activities resulting from “applicable requirements” for GHGs; and (3) any other information “considered necessary to determine the applicability of, and impose, any applicable requirements of GHG.” BACT guidance, p. 54. In the case of a renewal source, there is a strong argument (outlined below) that none of these applies.

No BACT/PSD in a Renewal Permit

The question now becomes, what are “applicable requirements” pertaining to GHGs for a renewal source during Step 1? Note that BACT is not applicable to a renewal source since BACT by definition is only applied to new or modified sources. This is consistent with the definition of “applicable requirements” at 40 CFR 70.2 as well as consistent with historical application of the Clean Air Act. In 1977, existing sources, the ones already up and running in 1977 - even the large U.S. fleet of old coal power plants built in the ’40s, ‘50s, and ’60s - were not brought under New Source Review (which is where BACT comes from). They were “grandfathered,” and allowed to operate without a permit until the existing facility made a “major modification.”

No Mandatory GHG Reporting Requirements in Renewal Permit

USEPA also states specifically in the BACT guidance that GHG reporting requirements established under USEPA’s mandatory reporting rule for GHGs (40 CFR part 98) are currently not included in the definition of “applicable requirements” under 40 CFR 70.2, 71.2. Thus, USEPA concludes that the mandatory reporting requirements “do not need” to be included in the Title V permit. (BACT Guidance p. 54). Note, however, that USEPA understates the issue: to the extent these requirements are included by overzealous (or inattentive) permit issuers, they are subject to challenge for removal. Clever states may try to “back door” these requirements by including these mandatory reporting requirements in the state implementation plans (SIPs) approved by USEPA, since “applicable requirements “ for purposes of Title V includes “[a]ny …requirement provided for in the applicable implementation plan approved or promulgated by EPA… including any revisions to that plan promulgated in part 52 of this chapter” but inclusion on that level may be subject to challenge.

If There’s No BACT/PSD and No Mandatory Reporting, What’s Left?

In Step 1 of the Tailoring Rule, nothing. Renewal sources should be issued their renewal permits without having: (1) to supplement their permit application regarding GHGs; or (2) the permits themselves include any requirements pertaining to GHGs. Keep in mind, however, that the approach changes on July 2, 2011 (Step 2) – so we suggest you try to get your renewal applications issued in draft before then!

If you have questions regarding your Renewal Source or questions regarding how the game changes in Step 2, contact Todd Maiden, Larry Demase, Jennifer Smokelin and David Wagner.

As background, new major stationary sources and major modifications at existing major stationary sources are required under the Clean Air Act to obtain an air permit before commencing construction. If the new source or major modification is planned for an area in which the national ambient air quality standards (NAAQS) are met or are “unclassifiable,” PSD requirements apply. PSD requirements obligate any new major stationary sources and major modifications to apply BACT for the source. Since there are no NAAQS for GHGs (or any proposed by USEPA), the entire United States is “unclassifiable” for GHG and subject to PSD, so all new major stationary sources and major modifications to which GHG emission regulations apply will require BACT for GHG emissions.

So . . . what is BACT in the context of GHGs? And how would a regulated entity achieve BACT? Broadly speaking, BACT is an emissions limitation that is based on the highest degree of control that can be achieved by a particular facility. But the guidance does not define or require a specific control option for a particular type of source because BACT is to be determined on a case-by-case basis. This new guidance provides the basic information that permit writers and applicants need to address GHGs. With regard to PSD and GHGs, not surprisingly USEPA recommends that permitting authorities use the BACT process to look at all available emission reduction options for GHGs. After taking into account technical feasibility, cost and other economic, environmental and energy considerations, permitting authorities should narrow the options and select the best one. USEPA anticipates that, in most cases, this process will show that the most cost-effective way for industry to reduce GHG emissions will be through energy efficiency.

Interestingly, USEPA is soliciting public feedback on the guidance over the next few weeks on any aspect of the guidance that contains technical or calculation errors, or where the guidance would benefit from additional clarity.

In the next week, we will be providing analysis on portions of the guidance that should be of interest to you and your facilities. The first of these niche publications will address Title V permitting under the guidance for sources with pending Title V renewal applications not issued in draft before January 2, 2011. Stay tuned.

Some Details and Acronyms

Under the first proposed rule, the SIP call, USEPA is proposing a finding of SIP substantial inadequacy for only the 13 states mentioned above (again, the "Presumptive Sip Call List").  For the most part, in all other states USEPA is proposing a finding of SIP substantial adequacy (the "Presumptive Adequate List").  If any of the Presumptive SIP Call List states are not in a position to submit to USEPA a corrective SIP revision within 12 months after USEPA signs the final action, USEPA will promulgate a FIP that will provide authority to issue PSD permits.  USEPA intends to finalize the SIP call on or about December 1, 2010. 

Nonetheless, for each of the presumptive adequate list states, USEPA is soliciting comments in the SIP call on whether their SIPs do or do not apply the PSD program to GHG sources.  USEPA is not at this time proposing a FIP for the states on the "presumptive adequate" list.  However, if EPA concludes after comment on the rule that a state's SIP does not apply to GHG sources, then USEPA will proceed to issue a finding of substantial inadequacy and a SIP call on the same schedule as the already-listed-as-presumptive-inadequate states.  If a newly listed state is not able to submit to USEPA a SIP revision that applies the PSD program to GHG sources by the SIP call deadline, then USEPA proposes to promulgate a FIP for that state without further notice and comment.  Thus, any state listed on the Presumptive Sip Call List (and any state that feels it might be added to such list after the comment period) should consider the comment period for the SIP call notice to be their opportunity to comment on the FIP as well.

Unlisted Jurisdictions: Inter alia, Allegheny County, Pennsylvania and Several California Counties

Again, the 13 states with "presumptive inadequate" SIPs are Alaska, Arizona, Arkansas, California, Connecticut, Florida, Idaho, Kansas, Kentucky, Nebraska, Nevada, Oregon and Texas.  All other states for the most part are on the "presumptive adequate" list - which means they should not expect a SIP call unless USEPA decides to the contrary at the close of the comment period on the SIP call notice. 

There are several unlisted jurisdictions.  An example of this is Pennsylvania.  Pennsylvania is on the presumptive adequate list (the list of states that appear to apply PSD to GHG sources).  However, USEPA specifically excepted solely Allegheny County from the Presumptive Adequate List when listing Pennsylvania.  In addition, Allegheny County, Pennsylvania, does not appear on the Presumptive SIP Call list.  According to USEPA, the Agency has determined that Allegheny County (among others) does not have an approved PSD SIP.  USEPA has determined that in Allegheny County, the applicable regulatory authority is USEPA's regulations, found at 40 CFR 52.21, and presumably has determined that no changes need to be made to apply PSD to GHG sources.  It is worth noting that the docket record reflects that USEPA made this determination without input from Allegheny County, according to USEPA sources.  This could be because Allegheny County did not respond to a 60-day letter request from USEPA regarding adequacy under the Tailoring Rule.  Allegheny County may not have made a determination internally whether its air regulations require revision to apply PSD to GHG sources.  There is only USEPA unchallenged assertion at this point.  Thus it is still not clear whether Allegheny County air regulations require revision - that is, whether conflicting provisions create ambiguity within Allegheny County air regulation as to whether it applies to GHGs.  If USEPA's conclusion remains unchallenged, sources in Allegheny County can expect the proposed FIP (that is, the provisions of 40 CFR 52.21 limited solely to GHGs) to apply to PSD permitting after January 2, 2011 in accordance with the Tailoring Rule and its phased-in approach.

Another example of unlisted jurisdictions is California.  Four California Air Quality Management Districts (AQMD) appear on the Presumptive Adequate list (Mendocino, Monterey Bay Unified, North Coast Unified, and Northern Sonoma County).  One California AQMD appears on the Presumptive Sip Call List (Sacramento Metropolitan). All other AQMDs in California are unlisted  -  presumably because USEPA has determined that these jurisdictions (among others) do not have an approved PSD SIP.  This means that sources commenting on the USEPA proposed action have localized interests - that is, comments on and objections to USEPA's proposed action may vary from site to site.  Companies with multiple facilities in California should coordinate responses carefully.

If you have any questions regarding these proposed rules, please do not hesitate to contact Larry Demase, Todd Maiden, Jennifer Smokelin or Dave Wagner.

On August 12, 2010 EPA issued the final “Tailoring Rule.” The rule sets forth USEPA’s determination as to which GHG sources will be covered under the CAA and at what point these sources will be covered. Without the Tailoring Rule, even small sources would need to get permits for their GHG emissions when the Agency’s emission limits trigger CAA permitting rules for industrial facilities. The CAA’s emission thresholds for “conventional pollutants” such as lead and sulfur dioxide are 100 or 250 tons a year, but USEPA has indicated that those limits are not feasible for GHGs, which are emitted in much larger quantities.

So far there are numerous challenges to the Tailoring Rule. Last week, the U.S. Court of Appeals for the District of Columbia Circuit consolidated 20 of the lawsuits against USEPA’s Tailoring Rule. The case’s court date has not yet been set. Unlike challengers to the Endangerment Finding who don’t want USEPA to act, most of the challengers to the Tailoring Rule (in particular the environmental groups) don’t think USEPA is going far enough to regulate GHGs under the rule.

These challenges to the Tailoring Rule likely have some merit. The crux of these challenges focus on the threshold and timing determinations in USEPA’s final Tailoring Rule. USEPA initially proposed to regulate industrial sources that emit more than 25,000 tons of carbon dioxide per year, but the final rule set a significantly higher emission threshold with plans to phase in smaller sources over time. Starting in January 2011, only sources that already have to apply for permits for other pollutants and emit more than 75,000 tons of GHGs per year would be affected. And starting in July 2011 new and modified plants that emit more than 100,000 tons of GHGs per year would be affected. This effectively leaves major industrial sources under the 75,000 threshold unregulated until at least 2016 and perhaps beyond. Challenges to the Tailoring Rule claims that this switch from 25,000 to 75,000 tons in the Final Rule is arbitrary and capricious with no scientific basis in the record to support it.

Interestingly, one of the most significant challenges to the Tailoring Rule has been brought by the Center for Biological Diversity (CBD). This challenge, filed on August 2, 2010, has been getting a lot of press lately, likely due to the CBD's impressive track record. This non-profit organization has picked legal battles it is likely to win, claiming that 93 percent of its lawsuits result in favorable outcomes.

Last year, USEPA finalized the first-ever GHG mandatory reporting requirement (MRR) in October of 2009. That rule required 31 industry sectors, covering 85 percent of total U.S. GHG emissions, to track and report their emissions.

In addition to those 31 industries, USEPA is now proposing to collect emissions data from the oil and natural gas sector, industries that emit fluorinated gases, and from facilities that inject and store CO2 underground for the purposes of geologic sequestration or enhanced oil and gas recovery. In a move broader than expected, covered facilities include onshore petroleum and natural gas producers, offshore petroleum and natural gas producers, onshore natural gas processing, natural gas transmission, underground natural storage, liquefied natural gas (LNG) storage, LNG import and export facilities, and natural gas distribution facilities. Methane is the primary GHG emitted from oil and natural gas systems and is more than 20 times as potent as CO2 at warming the atmosphere. USEPA’s proposed rule sets the reporting threshold for methane at 1250 tons per year.

USEPA expects to publish the final rule later in 2010 so that data collection for this source category can begin on January 1, 2011 with the first annual reports submitted to EPA on March 31, 2012. USEPA estimates that the proposal would cover 85 percent of the total GHG emissions from the U.S. petroleum and natural gas industry with approximately 3,000 facilities reporting. Due to the unique characteristics of these industry segments, the proposed definition of “facility” for onshore and offshore petroleum and natural gas production, and natural gas distribution differ from the definition of facility applied in the remainder of the MRR.

The proposals will be open for public comment for 60 days after publication in the Federal Register. The agency will also hold public hearings on these proposals on April 19, 2010 in Arlington, Va. and April 20, 2010 in Washington, D.C.