CLIMATE:

EPA piecing together regulatory framework

U.S. EPA has submitted the first piece of its suite of greenhouse gas rules to the White House for review, a signal that the agency is on schedule to finalize its first regulations to curb the heat-trapping emissions.

EPA sent to the White House Office of Management and Budget last Thursday its final reconsideration of the George W. Bush administration's "Johnson memo," a determination from former EPA Administrator Stephen Johnson about when the government must begin to regulate industrial facilities' greenhouse gas emissions. That decision is seen as a critical policy to have in place before the agency issues its final greenhouse gas rule for tailpipe emissions (Greenwire, March 5).

The agency is expected to finalize the auto standards -- slated to come in tandem with the Transportation Department's corporate average fuel efficiency (CAFE) standards -- by March 31. Once greenhouse gases are "subject to regulation" under the Clean Air Act, the agency will also be required to regulate stationary sources of the emissions.

But first, EPA must outline in its reconsideration of the Johnson memo when the gases will technically become "subject to regulation."

Last fall, EPA announced that it was considering several interpretations of when a pollutant must be accounted for in clean air permits but said it would prefer to uphold the policy outlined by Johnson that facilities should be required to obtain New Source Review permits only for pollutants that are subject to "actual control" under the Clean Air Act, as opposed to those that are subject to monitoring and reporting requirements, or other definitions.

EPA is expected to arrive at that same conclusion when it issues its final reconsideration. But experts say the agency has several options to choose from when deciding when the emissions are subject to actual controls. EPA could decide to begin requiring permits from industrial sources when the tailpipe rule is promulgated, when the standard takes effect 60 days later, or when car companies must begin to comply with the rule, in January 2011. Additional options may also apply.

President Obama's EPA administrator, Lisa Jackson, recently pledged the agency will require stationary sources to account for their greenhouse gas emissions in "early 2011," signaling that the agency may adopt an interpretation that the permitting requirements kick in when car companies must begin to comply with auto rule. Then, EPA will begin to require large sources to obtain Prevention of Significant Deterioration (PSD) permits for their greenhouse gas emissions. The PSD program requires new and modified facilities to install the best available pollution controls.

"EPA in recent statements has indicated that it plans to attempt a more orderly transition for phasing in the PSD permitting requirements for greenhouse gases over a period of time, as opposed to triggering PSD immediately for all sources when it finalizes its motor vehicle rule," said Roger Martella, who served as EPA general counsel during the George W. Bush administration.

Martella and others said it makes sense for EPA to have that policy in place prior to finalizing the auto standard because it would help provide certainty about when the agency plans to begin regulating stationary sources.

"By releasing the Johnson memo ahead of other rules, [EPA] may attempt to eliminate some of the uncertainty regarding how soon it believes PSD requirements will be triggered in the aftermath of the motor vehicle rule," Martella said.

Another key piece of EPA's climate policy -- the so-called "tailoring" rule -- is also due out this month. That rule will determine which sources are subject to permitting requirements. The Clean Air Act's current thresholds for regulating harmful pollutants like lead, sulfur dioxide and nitrogen dioxide are 100 or 250 tons per year. But while those thresholds are appropriate for those pollutants, EPA says, they are not feasible for greenhouse gases, which are emitted in much larger quantities.

EPA last year proposed to "tailor" permitting programs to limit the number of facilities that would be required to obtain PSD and Title V operating permits. The agency last year proposed to raise the threshold to sources emitting more than 25,000 tons of greenhouse gases a year, but Jackson said recently that the agency would "substantially" raise that threshold and will not require permits over the next two years from sources that emit less than 75,000 tons annually.

David Doniger, policy director of the Natural Resources Defense Council's Climate Center, said that "there shouldn't be any surprises" when EPA rolls out its final rules.

"The process is pretty transparent, actually," he said. "We generally don't know as much about the outcome of rules as we know."

"Anyone who is still trying to gin up a sense of crisis doesn't have much to work with," he added.

Still, there are those on Capitol Hill who say EPA regulations are the wrong way to tackle greenhouse gas emissions. Several lawmakers in both chambers of Congress have launched attempts to stall or upend EPA climate rules. And although many observers say those bids are unlikely to clear the Democratic-led chambers or win the backing of President Obama, such efforts have gained increased support from members on both sides of the aisle in recent weeks as EPA regulations have moved closer.

'Next big controversy'

Jackson last week signaled that projects that have already applied for Clean Air Act permits would be required to account for their greenhouse gas permits if those permits are finalized after 2010, a statement that came under fire from some industry representatives.

"The truth of the permit process is that the permit requirements apply at the time that the permit is issued," Jackson told reporters last week.

"People have applications in right now, trying to sort of beat the wave and see what's going on, and folks are onto that; they know carbon constraints are coming," she said. "So I would feel safe saying that what will happen is, it won't be our intention to hold up any permits, but the permitting process for a major stationary source -- a new source or a modification -- can take years, so it isn't fair to say that at some point in there, there may not be changes in the regulatory environment."

Environmental attorneys have also argued that the legal requirements that apply are those in force whenever the final permit is issued.

But Jeff Holmstead, former EPA air chief during the George W. Bush administration, criticized Jackson's comments, saying that policy would be "the next big controversy." It "really puts everybody kind of at the mercy of EPA and whether they like your project or not," he said.

"As a matter of law, that's not the way it works," added Holmstead, who now represents coal-fired utilities as a lobbyist at Bracewell & Giuliani. "It's not whatever requirements apply when they finally decide to give you your permit."