Earlier this month, U.S. EPA's Environmental Appeals Board remanded a Utah power plant permitting decision to its Region 8 office, asking the regional office to consider the regulation of greenhouse gases before approving the project. Will the EAB's decision put a hold on the development and construction of new coal-fired power plants? During today's OnPoint, Roger Martella, a former general counsel for EPA, and now a partner at Sidley Austin, reacts to the appeals board's decision and explains how the decision will affect permitting for new coal-fired power plants in the future. Martella also gives his take on whether the incoming Obama administration should use the Clean Air Act to regulate emissions.
Monica Trauzzi: Welcome to the show. I'm Monica Trauzzi. With us today is Roger Martella, a former general counsel for the EPA and now a partner at Sidley Austin. Roger, thanks for coming back on the show.
Roger Martella: Thank you, Monica.
Monica Trauzzi: Roger, major news coming out of the EPA appeals board last week relating to a power plant permit in Utah for Deseret Power. What did the appeals board find there?
Roger Martella: Well, you know when I read the decision it almost seemed like déjà vu with the Massachusetts case again. You might remember in Massachusetts v. the EPA the Supreme Court didn't quite say you had to regulate greenhouse gases, it stopped just a step short of that and said you had to go back and reconsider whether you should regulate greenhouse gases. And the EAB decision pretty much follows that approach. It doesn't absolutely say you have to impose greenhouse gas controls on permits, but it says the EPA has to go back and reconsider whether to impose greenhouse gas controls on permits. So it's very analogous in that procedural way.
Monica Trauzzi: And they also want them to develop an adequate record for the decision, really explain the reasoning behind it.
Roger Martella: I believe the decision leaves the EPA with basically three options. They either have to go with the approach you just mentioned, which is to go back and develop a new rationale, a stronger rationale for not addressing greenhouse gases. Or the second option is they could actually impose greenhouse gas controls and post back controls on permits. Or the third option, which they very explicitly suggest, is doing a national rulemaking. So it seems like EPA has three options is considering, I would assume at the moment.
Monica Trauzzi: And as the former general counsel for the EPA, what's your reaction to the appeals court decision? And where you just listed three options, where do you think EPA is going to go with this?
Roger Martella: Well, my reaction is…and for full disclosure, I worked very closely with a team of some of the best attorneys at EPA on our rationale going into this decision. I believe we had a very strong rationale. I think, actually, when you read the EAB decision they talk about all the different ways on which we based our rationale and then say it wasn't enough. So I disagree with the decision. I think the rationale is very well articulated. I think the record put together by both Region 8 and EPA headquarters wasn't very strong. In terms of where this goes, I think this is really teeing up an issue for the next EPA administrator probably on the first day. I could imagine that this is an issue that people want to bring to the attention of the EPA administrator very soon as one of the primary, most important issues to be decided early on in the next administration.
Monica Trauzzi: Yeah, and it's unlikely that Bush would do anything in the final weeks of his term. So this is really seen as a punt to the Obama administration. And based on what he said regarding emissions reduction and the Clean Air Act, how would you expect things to go?
Roger Martella: Well, if you look at those three options the next administration seems to be setting expectations pretty high that they are going to be aggressively regulating greenhouse gases. So the first option of coming up with new rationale, given where they're setting expectations, would surprise me I guess. It seems like they will be more focused on either how could they define back controls for permits? Should they be approaching this through a national rulemaking? Or maybe should they be devoting their attention to really understanding the Clean Air Act just doesn't address greenhouse gases and putting energy and to working with Congress and finding a rational way to approach this global challenge.
Monica Trauzzi: Do you see this decision as sort of helping to usher in a period of more stringent environmental regulation as is being suggested as what Obama will do?
Roger Martella: Well, since the Massachusetts decision we've been stepping toward an inevitable day under which greenhouse gases will be regulated, whether it's under the Clean Air Act or some new law, this seems to be a step closer to that direction. It doesn't walk through the door, but, again, the trend is moving in that direction. The statements by the administration make it clear they're not going to be reversing course. And the question is how soon do they walk through that door?
Monica Trauzzi: Will there be an appeal against this decision?
Roger Martella: It's an interesting question. I think the primary authority is with the actual permittee to decide whether they plan to appeal and I haven't seen any comments from them. I'm sure EPA is assessing its options as well, but I would presume that we should be looking for direction from the Bonanza power plant on whether they will be pursuing an appeal either to the 10th Circuit or to the DC Circuit here in Washington.
Monica Trauzzi: Let's talk about what this all means. What are the ramifications beyond this one specific power plant? What does this mean for other power plants that are seeking permits?
Roger Martella: It's a difficult question to make general statements about. In the short term there's probably going to be some uncertainty. In the short term it would be surprising in the next week or two to see permits being issued as people read through the decision and decide where to go. If you look past that a little bit, it depends on the state. It depends on first of all is the state an approved state or a delegated state? If it's a delegated state, which is just smaller numbers, the permits go back to the EPA. They go back to the EAB. And so there's an argument there that someone could argue that they have to follow the EAB precedent. If it's an approved state, which again most of the states are, the question becomes more complicated. If you look both that the policy of the state and the standards in the state and you're going to have to assess case by case how is the state likely to react? Are they going to give some direction? Some states, like Utah, where this permit originated from even though it was on Indian land, have already decided in their environmental reviews that greenhouse gases are not part of permits. So would Utah reconsider that position? So it's going to take some time to really know how this impacts permits in the pipeline.
Monica Trauzzi: Some industry folks are saying that this decision doesn't mean all that much, while environmentalists say it's huge. Where do you side on that? Is this significant?
Roger Martella: I think it's significant from a more procedural standpoint. From a legal standpoint it doesn't decide that you have to impose greenhouse gas restrictions on permits. So, from the industry perspective, that's good news. From a procedural standpoint, again, it is opening up the door very early for the Obama administration to take this issue head-on, perhaps earlier than people would have anticipated. So the question becomes where do they go with this and what's the long-term ramifications? I think if the environmental groups are cheering to some extent they may be looking at this longer-term and predicting where they think the administration may be going.
Monica Trauzzi: Beyond the coal-fired power plants, do you see this also impacting refinery construction as well? That's something that we've been hearing a bit about.
Roger Martella: It will come down to whether or not people decide to challenge certain permits. The PSD program applies to stationary source permits, major permits above certain thresholds per year. So to some extent legally, there's some distinctions that could be made between different sources and there's some distinctions that are harder to make. So it will come down to the different types of thresholds, whether petroleum refineries, whether certain manufacturer sectors trigger those thresholds in the permitting departments.
Monica Trauzzi: Final question here. Some environmentalists say that there's this frenzy in the power plant industry to build as many power plants as possible before there's some form of a federal cap on emissions implemented. Do you see that as the case and how does this decision may be impact their ability to build as many power plants that they'd like to?
Roger Martella: What I see as the case talking to utility officials all over the country is the interest is in building the need for power in a way that's much cleaner than we've ever done in the past and in a way that promotes the ability to adapt to carbon sequestration in the future, in a way that allows us to take dirty power plants off-line and have more efficient power plants. So the interest I'm seeing as a general proposition is trying to modernize existing plants, making them more efficient, making them more environmentally friendly, and providing more for our long-term utilities in the country. So I think that's where the real incentive is.
Monica Trauzzi: Okay, we'll end it right there. Thanks for coming on the show again.
Roger Martella: Thanks Monica.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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