DC Circuit Nixes EPA Biofuel Deferral Rule

EPA’s regulation of CO2 emissions took another twist last month when the DC Circuit vacated EPA’s rule that deferred regulation of emissions from biogenic sources.

To understand the nature of the rule, one needs to roll the tape back and look at EPA’s GHG program from the beginning. In October 2007, the U.S. Supreme Court held that carbon dioxide fits within the “sweeping definition” of “air pollutant” in the Clean Air Act and therefore EPA was legally obliged to determine (1) whether CO2 emissions endanger human health and welfare and (2) if so, whether emissions from mobile sources cause or contribute to those emissions. In December 2009, EPA made its “endangerment finding” and in April 2010 issued a regulation setting emission limitations for automobiles and light-duty trucks.

At this point, things start to get complicated. The Clean Air Act has provisions that govern pollutants “subject to regulation” under the Act. EPA had interpreted this phrase to mean that if a pollutant is regulated under any provision of the Clean Air Act, then it is “subject to regulation” and therefore subject to all provisions of the Act. In other words, once CO2 emissions from mobile sources were regulated, CO2 was deemed to be a pollutant “subject to regulation” under the Act, and therefore all CO2 emissions sources, including emissions from stationary sources, were now governed by the Clean Air Act. So, also in April 2010, EPA issued a rule confirming this interpretation.

Then the program encountered yet another strange twist. The Clean Air Act defines a “major emitting facility” as any stationary source that emits more than 100 or 250 tons per year (depending on the source) of any regulated pollutant. Applying that threshold value to CO2 emissions, though, would be (in EPA’s words) “absurd.” So, rather than stopping its regulatory juggernaut at this point, in June 2010 EPA issued a 4th rule (the “Tailoring Rule”) “tailoring” (which is EPA-speak for “overruling”) the Act’s thresholds to numbers that EPA deemed more suitable, namely 75,000 or 100,000 tons per year of GHGs, depending on the source. EPA also limited the obligations to facilities that were already required to obtain PSD or Title V permits anyway (although that exclusion was removed in a follow-up rule).

We are actively involved in an ongoing challenge to all four of these rules, and have a petition pending before the U.S. Supreme Court for a review of whether this whole convoluted, statute-busting scheme is lawful. We expect to hear whether the Supreme Court will take up the case this Fall. Our hope is that the Supreme Court will agree to hear the case and will then declare that, as one might hope, EPA does not have the authority to overrule Congress. We shall see.

Now back to emissions from “biogenic” sources. Since EPA’s “endangerment finding” was based on the supposed climate changes induced by increasing levels of atmospheric CO2, several organizations petitioned EPA for an exemption for CO2 emissions from “biogenic” sources such as wood, ethanol, methane from landfills, and similar sources. The idea is that the CO2 emitted from such sources was originally CO2 in the atmosphere, which was then fixed by plants, and so burning biogenic fuels does not create the increase in atmospheric CO2 that prompted regulation in the first place.

EPA agreed that there was some merit to that logic, and so in July 2011 EPA issued a rule, called the “Deferral Rule,” under which EPA postponed regulation of CO2 emissions from combustion of biofuels and from other biogenic sources for a period of three years while it studied the net effect of such emissions. However, in one of those “whose-side-are-you-on?” twists common the environmental area, a number of environmental groups (who, one would think, would be in favor of using energy from renewable, biological sources) sued EPA contending that the Deferral Rule was arbitrary and capricious and not authorized by the Clean Air Act.

EPA tried to defend the Deferral Rule under the same grounds that EPA used to defend the Tailoring Rule: namely the legal doctrines of “absurd results,” “administrative necessity,” and “one-step-at-a-time” regulation. The DC Circuit bought those arguments in litigation challenging the Tailoring Rule and affirmed EPA’s decision. For the Deferral Rule, however, the DC Circuit would have none of it. The court’s reasoning would take more to describe that is warranted in a short update, but basically the court held that EPA simply failed to explain what it was doing or why, and failed to explain why a three-year deferral fits into any conceivable plan to achieve full compliance.

It’s not clear what EPA will do next. EPA may seek rehearing en banc, may appeal to the Supreme Court, may reissue the rule with different terms or rationale, or may issue an emergency rule to provide context while all of this plays out.

Likewise, it is hard to assess the practical effect of the court’s decision. The rule was set to expire in a year anyway, so for many facilities it will have no effect. Going forward from here, facilities that at some point down the road will be applying for, renewing, or revising permits for sources that exceed the applicable thresholds (a potential to emit of 75,000 tpy or 100,000 tpy CO2-equivalent, depending on source) should plan on meeting the applicable PSD and Title V requirements for major emitting facilities. For facilities that already have a permit (even one based on the Deferral Rule), one would think that they are relatively safe, at least for the short term.  The real confusion exists for facilities that are half-way into the process: facilities that relied on the Deferral Rule and have permits pending, or that have made construction plans, or secured financing. For such facilities, at the very least it’s probably a good idea to obtain a CO2-e emissions inventory, and then begin a dialogue with the agency as to what to do next. Unfortunately, though, the state agencies are just as much in the dark over these in-between facilities as anyone, so don’t expect too much clarity too quickly.

Some clarification on this might occur in the next few weeks. If you have any questions or comments, please feel free to contact the authors; otherwise, we’ll keep you posted as developments continue to occur.

E. A. Skip Kazmarek
Doug Cloud