As President Obama prepares to deliver his State of the Union address this week, how will U.S. EPA's regulation of greenhouse gas emissions play into his remarks? During today's OnPoint, Roger Martella, a partner at Sidley Austin and former general counsel at EPA, discusses the president's recent executive order for regulations and explains how it will affect new and existing rules coming out of EPA. Martella also talks about recent movement on boiler rules and New Source Performance Standards.
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. With me today is Roger Martella, a partner at Sidley Austin and former General Counsel at EPA. Roger, it's great to have you here as always.
Roger Martella: Monica, thank you for having me back.
Monica Trauzzi: Roger, last week the president signed an executive order hoping to cut some of the red tape that exists in our regulatory process here in the U.S. How will the executive order impact new and existing rules at EPA?
Roger Martella: Well, about 80 percent of the executive order are things we've seen before. But, in a way, that's good too. A lot of it repeats Clinton-era executive orders and there's been some criticism that the Obama administration has been ignoring these Clinton-era orders that require the agencies to take into consideration a full range of factors, such as cost. So, number one, that's good. We're happy to see President Obama respond to some of those critics and saying they're going to pay attention to these fuller considerations. There are two new significant things though in this executive order that could prove to be very significant if the president follows through and actually enforces them. First of all, the president made it very clear that agencies like EPA shall consider cost in promulgating rules. And went even further and said EPA shall take the least burdensome path among different options. So it will be interesting to see whether this becomes an overlay on EPA's decisionmaking in approaching the least burdensome path. The second thing he said is beyond new rules EPA should start looking at existing rules and basically revisiting old existing rules to see whether they can still be justified under this cost benefit analysis. So I imagine people will be standing in line asking EPA to do that and particularly the context of NAAQS, where EPA for decades has said, "We can't consider cost in promulgating a NAAQS." Now you have the president saying, "You shall consider cost. You have to consider cost and you shall choose the least burdensome path." I imagine this is going to ignite a very vigorous debate about trying to get EPA to, for the first time, looking at cost and implementing these very stringent NAAQS decisions.
Monica Trauzzi: Do you think all the controversy surrounding the use of the Clean Air Act for regulation of emissions sort of was a catalyst for the president when he wrote up this executive order?
Roger Martella: There clearly seems to be a new attitude, I think, in the last couple of months regarding the process in the administration and the process particularly at EPA regarding rulemaking. So there's been criticism for the first two years of the administration beyond substance that procedurally they were rushing too fast. They were on this frantic sprint to get rulemakings out the door, but not taking the time necessary to really reflect and think about the considerations. We've seen since December EPA, for the first time, taking that pause, taking a break to fully give the time necessary to think about the considerations, to seek more time. And I think that's a good development. Now, some skeptics may say this is more form over substance and at the end of the day they're going to come out with the same decisions. But at least I think they're addressing that criticism, that they're being a bit more patient and taking the time necessary to try to get things right.
Monica Trauzzi: So what's next on emissions regulation?
Roger Martella: From a greenhouse gas perspective we've got two major developments to look for in 2011. First of all, from the PSD permitting, these are permits for new sources, we have a major deadline coming up on July 1, where, for the first time ever, sources that have never needed an environmental permit before will be required to go through this very extensive and expensive process based solely on their greenhouse gas emissions. This is going to have a significant impact as of July 1, because it's these types of sources that are helping rebuild the economy out of the recession, that are growing the economy. And they're going to come to a screeching halt if for the first time they have to go through all the permitting process only because of greenhouse gases. So, I would anticipate we're going to see a lot of run-up to July 1 on reconsidering that deadline for those sources. The other significant development, and this is perhaps the most significant of all, goes to EPA's efforts to regulate existing sources. Up until now, EPA has only chosen to regulate new and modified sources, but it has committed to environmental groups that by the end of this year it will propose standards for existing sources for utilities and refineries. And this will open the door this year to sources, without changing anything at all, being subject to EPA greenhouse gas controls merely because they're an existing source. So that will be the New Source Performance Standards coming out this year.
Monica Trauzzi: How do the New Source Performance Standards impact certainty for the industry? Do they make things more uncertain?
Roger Martella: There's one very unique thing about New Source Performance Standards that I think adds to uncertainty which is, unlike most rules, New Source Performance Standards become effective on the date they're proposed and you never know quite when a proposal is going to come out. So, you could be chugging along with your permit and all of the sudden the EPA is going to propose a New Source Performance Standard that becomes retroactively applicable to you as of the date of proposal. So, for utilities, for refineries who know this is going to happen at some point it creates a significant amount of uncertainty, as well as for other source categories that EPA is going to address in the future, but nobody knows exactly when.
Monica Trauzzi: There's been a lot of discussion about how Congress may try to stop EPA from regulating greenhouse gas emissions and one thing that's being tossed around is using the appropriations process because if they attach it to a bill, the president won't be able to veto that. How likely do you think it is that we may actually see something passing out of Congress to stop EPA?
Roger Martella: Well, the new Congress has seemed to make it pretty clear that one of their top priorities is to address greenhouse gases and EPA's authority. It seems like among environmental issues that they've identified greenhouse gases as their top priority. So I would anticipate we're going to see significant energy put into a full range of options. I don't think it's clear exactly how they do it, whether it's through a probe, whether it's a pre-emption, whether it's a delay, but it does seem to be their overriding focus from an environmental perspective seems to be trying to better define what EPA's authority should be on greenhouse gases.
Monica Trauzzi: How long until we know whether EPA's regulatory process on emissions is actually working? I mean what kind of time line are we looking at to figure this all out?
Roger Martella: You know, we're already at the point where EPA's regulating greenhouse gases at this point. As of January 2 the system is in place, but between the litigation, between the legislation and all the tweaking going away at the end of the day, it's probably going to be 18 months to two years before we really have a full understanding of the overall scope of this system.
Monica Trauzzi: Another significant thing impacting EPA is the boiler backed standards and a D.C. court ordered EPA to finalize its boiler rules by the end of next month. What does this all mean? I mean it's a very short amount of times to get this stuff done.
Roger Martella: This is a huge disappointment I think for everybody, for the agency, for the industry, and I think even for the environment. EPA, again, consistent with this notion of trying to get the process right, went to the court and said we need more time. We got such significant comments we really need the time to look at these comments and make sure we have rules that are legally defensible. The environmental groups opposed that and the court said, "We're not going to give you enough time. We're going to give you just a month to get things out the door." It's going to be almost impossible for EPA, based on the comments it got, to get something out the door that's going to be legally defensible. And meanwhile, for the next month, it's going to have to put all its resources into doing that, so it's a bad result for EPA. For industry this is the rule that probably has more impact than any other rulemaking at the time. It really runs the risk of shutting down a significant part of the economy and so the uncertainty generated just becomes a bigger problem. And, for the environment, at the end of the day, we're either going to have a legally indefensible rule, despite EPA's efforts to get it out the door as quickly as it can, or we're going to have EPA have to just open the process up again for reconsideration. So there's not going to be any quicker results than the one it was initially asking for under its schedule. And I would like to hope that some of the groups would reconsider this and work with EPA on a schedule that gives them the chance to get the job done right and gets a rule out that can be defended.
Monica Trauzzi: OK, we'll end it there. Thank you for coming on the show.
Roger Martella: Thank you, Monica.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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