CLIMATE:

Lawyers mull possible outcomes in greenhouse gas cases

As the dust settles on the two days of court arguments over U.S. EPA's greenhouse gas regulations, close observers agree the agency's central finding that underpins the rules is likely to survive review.

But -- in a boost for industry groups and states challenging the regulations -- the court could rule in their favor over how EPA applies regulations to certain stationary pollution sources.

The three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit heard arguments Tuesday and Wednesday over a suite of four greenhouse gas rules.

On day one, the court considered EPA's endangerment finding, the agency's original conclusion that greenhouse gases pose a health risk and should be regulated under the Clean Air Act, and the "tailpipe" rule that set greenhouse gas emissions standards for cars and light-duty trucks beginning with 2012 models (Greenwire, Feb. 28).

The next day, the focus was on the "tailoring" rule, which interprets the Clean Air Act in such a way that only major polluters are required to obtain permits for greenhouse gas emissions (Greenwire, Feb. 29).

The court was considering the tailoring rule alongside the "timing" rule, which required that new controls of greenhouse gas emissions from stationary sources would be triggered Jan. 2, 2011, and a challenge to older regulations.

In the wake of the arguments, lawyers who were in the courtroom agree the judges are likely to uphold the endangerment finding and the tailpipe rule, disappointing climate skeptics in particular who wanted to challenge the science underpinning the EPA finding.

The judges appeared most receptive to the arguments concerning how EPA implemented older regulations under the Clean Air Act. If the court agreed with the petitioners on that point, it would likely signal the end of the tailoring rule.

"The court clearly got the argument, and the court is inclined to explore it carefully," said Patrick Day of Holland & Hart, part of a team of lawyers challenging the rules.

Consensus on endangerment

There was broad consensus among observers that the panel was unsympathetic to the petitioners' arguments about the endangerment finding.

More than one lawyer pointed out that the conservative Chief Judge David Sentelle and more liberal Judge David Tatel appeared to be "finishing each other's sentences" during the first day of arguments Tuesday. The other member of the panel is Judge Judith Rogers, who is generally seen as a moderate liberal (Greenwire, Nov. 3, 2011).

Underlying the judge's questions was a concern that the challengers were asking the court to either revisit the 2007 Supreme Court ruling in Massachusetts v. EPA, which instructed EPA to conduct an endangerment finding or make a scientific judgment about EPA's conclusion.

"Sometimes in reading the petitioners' briefs," Sentelle said Tuesday, "I get the impression that Massachusetts had not been decided."

Some industry representatives did think they scored a minor victory on whether EPA should have opened the rule to public comment when the agency revisited it after "Climategate" -- the 2009 theft and release of climate scientists' emails -- and added new information to its justification for the finding.

Tatel's questioning appeared to indicate he did not understand at what point EPA was required to start that process, said Scott Oostdyk of McGuire Woods LLP and counsel to the Ohio Coal Association, a petitioner in the case.

"Judge Tatel seemed to be wrestling with something that industry was wrestling with," Oostdyk said. "Where do you draw the line?"

There appeared to be less agreement on the panel when arguments turned to the tailpipe rule. In particular, Sentelle was concerned that EPA's regulations targeted six greenhouse gases, but only four are emitted from motor vehicles.

Sentelle said that aspect of the regulation "disturbs" him even though EPA's lawyers tried to point out that science treats the six gases collectively.

Lawyers involved in that challenge said afterward it was clear the judge has significant problems with the regulation.

"He was not convinced," said Tracy Triplett of the Massachusetts attorney general's office, which intervened in the case on EPA's behalf. "He did not seem to be open to that."

'Critical wrong turn'?

The petitioners' best bet, observers agree, is likely to be their challenge over whether greenhouse gases can be regulated via EPA's New Source Review/Prevention of Significant Deterioration program, known as PSD.

The argument is that EPA, as Sidley Austin attorney Peter Keisler put it during the argument, "took a critical wrong turn 30 years ago" by failing to limit pollutants that can be regulated via the program to the six covered by national ambient air quality standards, or NAAQS.

Based on the questioning and the judges' response, there is a "significant chance" the court will buy Keisler's argument, said one attorney involved in the litigation who declined to be named because his client did not want him to speak to the press.

Such a move, however, would scale back the number of pollutants that could be regulated under the PSD program, said Sean Donahue, an attorney who argued on behalf of environmental groups.

As EPA pointed out in one of its briefs, it has issued regulations for other non-NAAQS pollutants under the PSD program over the years: "fluorides, sulfuric acid mist, hydrogen sulfide, total reduced sulfur, municipal waste combustor organics, metals and acid gases, and solid waste landfill emissions."

Regardless, petitioners "must think it is one of their best shots," Donahue said of Keisler's argument.

That is in part because the theory has the advantage of "trying to find a way to exclude greenhouse gases [from regulation] to a degree without directly challenging Massachusetts v. EPA," he added.

The big winners in such a scenario would be companies constructing new facilities or modifying old ones that would emit greenhouse gases but not enough of any of the six pollutants covered by the NAAQS to trigger PSD permitting.

While that would please Keisler's industry clients, it would do little for those wanting to challenge the endangerment finding and the science behind it.

"There are some petitioners who would be satisfied and some who would not be," Day said.

If the court targets the PSD program in its ruling, however, it would not affect other EPA greenhouse gas efforts. EPA could still continue efforts to set standards for stationary sources under its New Source Performance Standards program, which would include consideration of greenhouse gas emissions.

That approach "could be a more rational form of regulation than PSD-based regulation," said Kyle Danish, an attorney at Van Ness Feldman whose clients include Santee Cooper, a petitioner in one of the challenges, but who was speaking on his own behalf.

Possible outcomes

The complex nature of the rules and the multiple lines of argument left many wondering about the practicalities of various outcomes and what they will mean for EPA's climate program.

For each of the four rules, the court has several options: It can rule against the petitioners; remand the rule back to EPA and ask it to fix it while leaving it in place; or vacate the rule, which would completely undo it.

Further complicating matters, Triplett said it is "more than likely to see more than one" opinion.

Dina Kruger, a former EPA climate director who was on the endangerment finding team, said there is an important distinction in that finding that was lost in the court arguments.

She said there are actually two parts of the rule. The first is whether greenhouse gases are reasonably expected to endanger health and welfare. The second is whether the pollutant causes and contributes to that harm.

That, she said, has an important implication if the court decides it is not comfortable with the six greenhouse gases regulated by the tailpipe rule.

"My own sense is that it does go back to EPA, but I don't think it would be accompanied by a stay of the entire endangerment finding," Kruger said. "I think it would be sent back and EPA would be told to take another look and potentially redefine the pollutant in another way."

That, she added, "probably wouldn't impact the tailpipe rule and wouldn't have an impact on the tailoring rule, either."

Allison Wood, a partner at Hunton & Williams who represents the Utility Air Regulatory Group, a petitioner in the challenges, said she thought one possibility is the court upholds the endangerment finding and the tailpipe rule but then instructs the agency to re-examine its interpretation of the statute that does not cause the PSD permitting problems.

There is also the possibility that the ruling could be appealed to the Supreme Court, though the high court typically does not take complex regulatory cases like this one.

Others suggested that a remand could open the door to significant changes to the agency's greenhouse gas and PSD permitting programs if a Republican wins the White House in November.

Kruger, however, said she did not think that would be the case. Since Massachusetts v. EPA, that ball is already rolling on regulating greenhouse gases, she said, and EPA is statutorily required to keep moving forward.

She did acknowledge that some changes were possible but added that environmental groups will continue to hold EPA's "feet to the fire" on regulations through petitions and lawsuits.

"If the administration changes, I would imagine that things might be a little less stringent and a little slower," she said. "I don't think this would mean that greenhouse gas regulations go away."

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