Is U.S. EPA's proposed rule for new power plants court ready? During today's OnPoint, Roger Martella, a partner at Sidley Austin and the former general counsel at U.S. EPA, discusses the agency's legal rationale for its new source proposal and explains how industry stakeholders may challenge the rule in court.
Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Roger Martella, a partner at Sidley Austin and the former general counsel at U.S. EPA. Roger, always good to have you here.
Roger Martella: Thanks for having me back, Monica.
Monica Trauzzi: Roger, with EPA introducing it's greenhouse gas proposal for new power plants last week, the focus is now shifting to next steps on legal action, and one of the key differences with the earlier proposal that we saw published in April of 2012 is that there is sort of a new legal rationale in this one. So explain that. What have they done differently this time around?
Roger Martella: Clearly EPA's anticipating litigation and legal action. I think we're setting ourselves up for a legal battle here and EPA knows that. I would say they took one step forward and one step back. They solved one of their major legal problems in the original proposal by now making a distinction between coal and natural gas, but at the same time, I think they've drawn more attention to the fact that they've, in effect, set the same standard for both, and the coal standard now has to be judged on its own merits. EPA seems to recognize this, and I have to say, of all the rules I've ever read, this has perhaps the most thorough legal analysis I've ever seen of any rule making. I think they're anticipating litigation. It reads, at times, almost more like a brief to the D.C. Circuit than an actual rulemaking and so they're creating the strongest possible record to defend what I think is a push-the-envelope position.
Monica Trauzzi: So, and because they wrote it and walked through the proposal as if it was being legally challenged already, how court-ready is it? I mean have they anticipated all the possible moves from the other side?
Roger Martella: If we had to give them a grade, I think in terms of pure legal advocacy, if this was a brief before the D.C. Circuit, I'd give them a solid A. On the last proposal, it would have been a D, because they're speaking in the language, the buzzwords, the D.C. Circuit likes to hear. They're referring to the court's cases. They're saying we considered alternatives, we looked at a full record, and the court pays a lot of attention to process and they know that and they focus very much on the process here. The question here that's unresolved despite the strength of the legal advocacy is are they going too far in terms of applying the legal standard and are they basically going past what the clean air act intended when they're saying we're going to say a technology that is not in use anywhere in the United States is nonetheless adequately demonstrated under the standard.
Monica Trauzzi: So they did a thorough job. What do you see as the biggest vulnerabilities?
Roger Martella: I think the biggest vulnerabilities is are they pushing the envelope too far. The legal standard they have to apply is relying on technology that is adequately demonstrated, and throughout the document, despite the record, EPA says this technology, carbon capture and sequestration, is not adequately demonstrated. There's only one facility under construction in the U.S., two more are planned. The pieces are there, but no one has proven that it all works together. They also rely on a baseline of the most efficient power plant in the country to start with and then they apply carbon capture and sequestration on that. So the legal fight's going to be on both those issues -- did they choose the wrong baseline and are they going too far in terms of saying a technology that's not currently in operation is actually adequately demonstrated under the law.
Monica Trauzzi: It's pretty broadly accepted and even acknowledged by industry that there are no current plans to build new coal in the U.S. because of low natural gas prices. So how strong is, then, industry's case on CCS when they go to court?
Roger Martella: I think industry could point to the fact just 12 months ago there were coal-fired power plants on the drawing board, going to the permitting stages and the previous proposal stopped those from moving forward, so things can change very fast. I think, first of all, industry will probably take issue with the assumption there's nothing on the drawing board and come forward with some ideas that are, but at the same time, everyone knows things can change fast. The circumstances can change and people will be taking a very forward-looking approach to the precedent of this rule making.
Monica Trauzzi: So any other potential challenges from stakeholders beyond just the CCS component?
Roger Martella: I think if we go back to the original proposal, there's going to be a whole panoply of issues, not only from the utility sectors, but from other sectors who are going to be concerned about the precedent of this. There's the endangerment determination, there's the way they're applying the standard, there's the baselines that they're using. This is the kind of rulemaking that will raise scores of issues, I think both in the comments and in the litigation.
Monica Trauzzi: So because draft and final proposals tend not to vary all that much from one to the other, what is happening behind the scenes right now in stakeholder meetings about how to best proceed moving forward, and how are you advising your clients?
Roger Martella: I think we can be pretty confident the final rule's not going to change much from the proposal. They took common on just the narrowest range of options here, not only the comments, the range of comments make a distinction, and they're under a very quick deadline to get this done. The advice we give to all our stakeholders is the comments are critical, not only from in terms of trying to influence the agency, but if you're thinking about litigation, whether you're challenging the rule or you want to support the agency, you have to preserve all your arguments in the comments. The court will not allow you to make a new argument in litigation that you haven't presented to the agency first. So the comment period here is key looking down the road, even if you don't think EPA is going to change its mind.
Monica Trauzzi: So next steps, we'll be seeing a final rule and then that leads us into a rule on, a proposed rule on existing sources.
Roger Martella: Yes. In all likelihood, this'll be finalized by June 1st of 2014, and then the biggest question that remains, I think, for this administration is what are they going to do about existing sources, which I think is really where the rubber hits the road for most of the facilities. To some extent, this raised more questions, this proposal raised more questions than it answered. There's been kind of conventional wisdom that EPA would use this proposal as the basis for how they would address existing sources. Here that doesn't seem unlikely because both from the baseline that they're using of IGCC and from their reliance on carbon capture and sequestration, even the administrator has come out and said those are not feasible in applying them to existing sources, so it remains a total black box at this point in terms of how they might be translating this into a standard they're going to apply across the board to existing sources in a proposal next June.
Monica Trauzzi: All right. We'll end it right 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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