Sidley Austin's Martella discusses impact of impending pollutant, emissions regulations

With several conventional pollutant and emissions regulations coming online in 2011, U.S. EPA is being criticized for being too aggressive in its regulation of stationary sources. Can industry keep up with the regulations? During today's OnPoint, Roger Martella, a partner at Sidley Austin and former general counsel at EPA, discusses the upcoming regulations and gives his take on how they may affect industry.


Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Roger Martella, a partner at Sidley Austin and former general counsel at EPA. Roger, it's great to see you as always.

Roger Martella: Thanks Monica. It's great to be back.

Monica Trauzzi: Roger, there's been such a big focus here in Washington on the impending greenhouse gas emissions regulations that we're going to see EPA rolling out early next year. But the Obama administration has the ball rolling on several other regulations that will impact utilities starting early next year. Is this an unprecedented number of regulations that we see coming out of EPA?

Roger Martella: That's been a general theme we've been hearing a lot. We are in the midst of this transition from a promulgation stage to an implementation stage. The first two years of the Obama administration focused on promulgating as you say and I think as a lot of people would agree, an unprecedented number of changes, both climate change related and conventional pollutant related. Now people looking at 2011 will become the year of implementation and one theme that's emerging is looking at each of these rules individually, the significant impacts they're going to have, but taking that a step further and looking at them collectively and realizing once you put these rules together collectively, there's going to be such a small window by which a lot of facilities will be able to remain operating in the U.S. that this is raising concerns, raising issues about having to go beyond each individual rule in analyzing the impacts of these rules collectively on manufacturing, on utilities, on refining moving forward starting 2011.

Monica Trauzzi: All right, so let's walk through some of these rules.

Roger Martella: Sure.

Monica Trauzzi: There are some key issues surrounding the regulation of conventional pollutants. What are those? We have several coming up this year.

Roger Martella: Right, there's basically three key categories of issues. There's NAAQS, there's NSPS and there's the hazardous air pollutants, MACT. On the NAAQS issues we have two significant decisions coming down the pike, maybe even by the end of this year, ozone NAAQS, where everyone is anticipating EPA will lower the existing standard of 0.075 to 0.070, perhaps even lower. And that will throw scores, if not hundreds of counties out of attainment in industrial areas for ozone NAAQS. The second NAAQS issue is PM NAAQS. This is the second major NAAQS issue, is we're waiting to see what EPA is going to do on that. It's up for a regular review, but we're anticipating EPA is going to lower the PM standard. That will have a significant impact in particular on kind of the Midwest, agricultural operations that tend to generate these particular types of materials. Perhaps the most significant, the most immediate impact of whether it's NAAQS, MACT or NSPS, will be the hazardous air pollutant issues. Overriding all of this is Boiler MACT. EPA proposed this back in the spring. We're expecting a final rule by the end of the year. This will apply to basically every industrial boiler in the United States. So it has incredibly far-reaching impact. EPA is taking a new approach to MACT issues that's much more stringent in the past and already we've seen with one industry alone, Portland Cement, their equivalent MACT affecting $3.4 billion, 18 facilities being closed with Portland Cement. So there's a concern about this going broader than one industry across the industry. The MACT issues correlate to another rule called the Commercial Solid Waste and Incinerator Units. This rule applies to incinerators and bridging Boiler MACT and the CISWI rule is the definition of solid waste, which is significant, because if you're burning solid waste you're in the CISWI rule if you're not burning solid waste, you're in the Boiler MACT rule. They each have different requirements and particularly as EPA is trying to promote bioenergy and biomass, there's some inconsistencies with whether biomass should be considered solid waste and which rule your under.

Monica Trauzzi: You've been dealing with EPA for long time now. Would you qualify their actions as aggressive at this point?

Roger Martella: I think they've got all balls rolling at one time and, you know, the administrator gave a very impassioned speech back on September 14th about the 40th anniversary of the Clean Air Act. And she cited all the successes EPA has had year after year, decade after decade, which is really impressive. And she was taking that to say we've heard these concerns before. We've heard people say the sky is falling and it hasn't been proven true. But I think there's a number of rebuttals to that. I think, first of all, in the past, EPA had always done a full cost-benefit analysis or Congress had. And they moved forward cognizant of the impacts on industry. This time EPA is moving forward, say with greenhouse gas regulations, without doing that impact analysis at all. One of the other differences is this notion of cumulative effects. EPA is doing all these things simultaneously, as opposed to taking on one issue, one program at a time. And third, I think we have to be cognizant that we're increasingly in a global economy. We're increasingly in a global marketplace and the impacts of reducing manufacturing in the U.S. will only lead to increased emissions and increased environmental issues in other parts of the world. So, unlike past decades, I think we have to be more sensitive to leakage issues and the role of our regulations in terms of how they impact the overall global environment.

Monica Trauzzi: Well, some people would argue that utilities can handle all this. They have enough money saved up, they can handle these regulations and, frankly, it's just part of doing business.

Roger Martella: And I think it's more than just a utility issue. You know, utilities account for a certain part of the economy. Utilities are always happy to say they'll step up. There were a lot of utilities who supported cap and trade. But, again, the concern is moving forward without the cost-benefit analysis and without understanding the impacts to manufacturing, which is a real job driver in the United States.

Monica Trauzzi: All right, so let's talk about the big climate regulations ...

Roger Martella: Sure.

Monica Trauzzi: That we're expecting at the beginning of next year. What are the key issues that we're going to see unfolding there?

Roger Martella: I think we have three outstanding climate issues and I kind of break them up into years. For 2010, the big issue that's outstanding is the BACT guidance. As you know, EPA will start to Impose Best Achievable Control Technology starting January 2 on new facilities that are being permitted. They have yet to tell us though what the nature of these controls are going to be. And this BACT guidance, this is I think kind of the best kept secret in Washington. What's happening with this BACT guidance? We know there's about a 40 to 50 page document sitting at the White House undergoing interagency review and we have some sense of what the document says. It's going to -- one of the questions is if you're a source undergoing permitting, does this BACT requirement apply specifically to your boiler or do you open the door to undergoing requirements for your entire facility? We think EPA is going to say, for new sources, your entire facility could be subject to this BACT control. But for existing sources it's going to be a more narrow definition applying maybe to that boiler a little bit more. So it's going to make that distinction. The second piece of information we have is it's going to be primarily focused on energy efficiency. EPA is probably not going to open the door to fuel switching at this time, although it may do so in the future. But energy efficiency is a broad term. We don't know exactly how they're going to define it. Third, we also think EPA is going to take a step back regarding biomass and try to make sure that they're not dis-incentivizing bio-energy as a result of these greenhouse gas requirements. That's 2010. 2011, the big issue of the year is going to be NSPS and New Source Performance Standards. EPA, for the first time, is going to take up the issue of how to address greenhouse gases through NSPS. So far it's only done it on permitting. This will apply to all new sources and, ultimately, the most significant thing here is EPA may apply NSPS to existing sources. So this is the way EPA could ultimately regulate the emissions of existing sources for greenhouse gases. Looking out a little bit further to the end of 2011, 2012, I think we'll see EPA start to consider a cap and trade type approach under the Clean Air Act if Congress doesn't act sooner. They'll take up the question can they do cap and trade themselves under the Clean Air Act?

Monica Trauzzi: So, are we actually going to see regulation beginning next year or are we going to see a series of lawsuits that get in the way of that regulation?

Roger Martella: I think we're going to see them both moving forward. We're going to see EPA seeming to move full steam ahead on the regulations. There's going to be efforts in the court, there already are, to try to stay some of these rules. A lot of people are taking the position they don't necessarily need to be stopped, but to be stayed a little further as EPA considers further analysis or puts the industry in a position to be able to implement them. But we're going to be seeing this go in parallel tracks.

Monica Trauzzi: We're almost out of time, but I do want to touch on what the states are doing, what's happening on the state level.

Roger Martella: Yes. To me the state implementation issue has been perhaps the most interesting issue of the year. Everything EPA is doing hinges on states being able to effectively implement these issues. The states, starting with Texas, and now additional states are raising additional significant concerns that they're not in the position to move as quickly as EPA wants them to move. Some of them aren't in the position to move at all. And so I think the big battleground for 2011 may not so much be the courts, but how are the states going to be able to respond and implement these kind of aggressive regulatory agendas that EPA is trying to push forward.

Monica Trauzzi: All right, so lots of moving parts to keep our eyes on. Thank you for coming on the show as always.

Roger Martella: Thank you, Monica.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

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