Air Pollution

Georgetown panel analyzes arguments in Supreme Court's New Source Review case

On Nov. 1, 2006, the Supreme Court heard oral arguments in a case involving the Clean Air Act's New Source Review clause. During today's E&ETV Event Coverage a Georgetown law panel summarizes and comments on the details of the case and discusses the oral arguments. Panelists include Bracewell & Giuliani's Scott Segal, F. William Brownell of Hunton & Williams and Environmental Defense counsel Sean Donahue.


Susannah Foster: I'm going to give a really brief overview of the case, which is a very complicated case and I'm going to try to do it quickly. So if I misstate anything or leave anything out, hopefully the panel will feel free to fill it in. This case arose out of a 2000 enforcement action by EPA against Duke Energy, alleging that Duke had illegally modified its plants without complying with the Clean Air Act Prevention of Significant Deterioration Program, otherwise known as the PSD program. The PSD program, added to the act in 1977, it is meant to prevent air pollution from getting worse in areas that have already attained National Ambient Air Quality Standards. So under that program any new plant or any plant that undergoes major modifications that increase the plants' emissions, has to install modern pollution controls. More precisely, the statute requires that no major emitting facility may be constructed in any area to which PSD applies, unless certain technology requirements are met. Construction is then defined to include modification. And the statue cross-references another part of the act, the New Source Performance Program, for the definition of modification. Under that program modification is defined as any physical change in or change in the method of operation of a stationary source which increases the amount of any air pollutant emitted by that source. Further complicating matters, in 1975, EPA promulgated regulations to clarify the term modification under the New Source Performance Program that explicitly excluded modifications, from physical change, any changes that extended the hours of operation. So under the New Source Performance program EPA has interpreted an emissions increase to be an hourly emissions increase, but, by contrast, under the PSD program EPA has interpreted emissions increase to be an annual emissions increase. And this is important because Duke Energy's modifications caused an annual emissions increase, but not an hourly one. In 2003 the District Court in North Carolina dismissed EPA's enforcement suit ruling that the hours exclusion in the New Source Performance Program exempt increases in hours of operation from triggering PSD. In 2005 the 4th Circuit affirmed the District Court's decision, but on different grounds. The 4th Circuit held that because Congress had cross-referenced the New Source Performance Program that the term modification had to be defined identically under the two programs. And the 4th Circuit cited the Supreme Court's Roen decision for that proposition. In Roen, the court had held that two substantially identical definitions of wages in two different tact statutes had to be interpreted to mean the same thing. One final critical piece of background on this case, section 307(b) of the Clean Air Act requires that a petition for review of any rule of national applicability must be made in the D.C. Circuit within 60 days. Duke Energy and a number of other groups did file such a petition for review for this rule, and just several days after the 4th Circuit's decision the D.C. Circuit ruled in York v. EPA that EPA's interpretation of the PSD program was legal. So this morning the Supreme Court heard the arguments. The two major questions before the court were, one, whether the 4th Circuit's decision violated section 307(b) of the act because regulations under the act are subject only to challenge in the D.C. Circuit and not during an enforcement proceeding. And, two, whether the act's definition of modification made EPA's interpretation, under the PSD program, that it's an annual increase, unlawful. So there's a hopefully brief explanation of the case.

William Brownell: Did anyone understand that?

Susannah Foster: I'll turn it over to ...

Scott Segal: It's better than we've done, that's for sure.

Susannah Foster: Professor Echeverria to moderate the panel. Thank you.

John Echeverria: This is sort of an object case for law students who think they might be interested in environmental law because they like bird watching or they enjoy nature. This is the kind of technical case that makes those students run for the doors, nonetheless, a very interesting and important case. I'm first going to introduce our panelists, Sean Donahue, served as counsel for Environmental Defense and other environmental petitioners. He's in private practice emphasizing environmental law here in Washington, D.C. Before embarking on private practice he served in the Department of Justice Environment and Natural Resources Division. He was a law clerk to Justice John Paul Stevens and he's done so much visiting at Washington Lee University that I think you have tenure, but maybe that's not official yet.

Sean Donahue: They don't know that.

John Echeverria: They don't know that. He's a graduate of ...

Sean Donahue: Actually there are some people that ...

John Echeverria: And Professor Halper can help us clarify that status. You're a Chicago law school graduate. Secondly, Bill Brownell, co-counsel for Duke Energy in this case. He practices as a partner at Hunton & Williams, where he has a wide ranging environmental law practice focusing on litigation, regulation, and counseling. Bill has not one, not two, but three Georgetown degrees and, most importantly, he's in 1978 graduate of this law school. Third, Holly Gordon is a clinical fellow at Stanford Law School and in that capacity she wrote a brief for the EPA administrators. Before joining Stanford she served as a staff attorney at Communities for Better Environment in Northern California. And before that as a staff attorney at Chicago Environmental Law Clinic, associated with the Chicago-Kent College of Law, of which she is a graduate. And last, but not least, is Scott Segal, counsel for the boilermakers. Right? And you'll explain your point of view in this case?

Scott Segal: Sure.

John Echeverria: A partner in a Texas-based law firm, been very active on the global warming issue, both in terms of legal and regulatory work and also strategic communications. He has a JD from the University of Texas School of Law. The plan is to divide the program into, try to keep it as organized as possible, and toward that end to divide the discussion into three parts. One, I'm going to ask each of the panelists to comment for no more than five minutes on the first issue that the court addressed, or at least the first issue they addressed in logical order, and that is the section 307 issue. Whether the D.C. Circuit, by virtue of its prior rulings in this case, resolved the validity of the regulation and precluded this litigation in the 4th Circuit. So if we could go Sean and Bill and then Holly and Scott, as I say, no more than five minutes, and then we'll move on to the merits of the case.

Sean Donahue: Thank you. Yeah, I mean the challenge of this case with a lot of regulatory matters is that in learning enough to write about it you come to speak a language that your audience, even very sophisticated lawyers such as those seated a little higher up on the Hill, speaks. And that you need to be able to toggle between big picture concepts and regulatory detail. And I was struck today with how very, very difficult it is to encapsulate matters as complex as this in a short time. It's obviously a little easier on paper. On the jurisdictional issue, that section 307(b) of the Clean Air Act says that actions of the EPA administrator that could have been, it provides for exclusive review of certain kinds of actions, like national rulemakings, in the D.C. Circuit. And then provides that if you could have gotten review of an action in the D.C. Circuit you can't challenge it in an enforcement proceeding. And the idea of the provision was we have a complex statute. We want to have a kind of centralized, uniform, judicial interpretation. These rules have to be implemented in state plans throughout the country. We don't want courts all over the place reaching different results. And given the complexity of the statute and the regulations, the risk of judicial disparity of course is much higher than it would be with a simpler system. So Congress designated the D.C. Circuit and precluded review and enforcement actions of certain, so the question in this case is, is our controversy one of those that is subject to this bar? And the parties, I think, disagree about exactly what the controversy is. Our side says these regulations may be ambiguous about many things, and surely they are, right? This is a fairly young program, very complex, being implemented by the agency in 1980. But we say on the matter in controversy here, which is a fundamental question about how broad this program is going to apply, we say the regulations in 1980 took a position, a clear position in terms of an actual annual rate. And one that would, in circumstances like those at issue, take account of increased utilization, increased hours of operation of a plant that result from an improvement, physical improvement of some kind. The respondents say EPA didn't make that clear, at least in the original regulations, only much later. And, therefore, we couldn't have challenged this in the D.C. Circuit. We had to challenge it when the government sued us. And so that's sort of what's before the court. It's an issue that one court has, you know, we have the 4th Circuit that went ahead and said, and ruled on this question of whether the definitions have to be the same. We have a court in the 7th Circuit, this summer said, no, the 1980 regulation said actual annual. If you're saying that that's illegal or wrong, that was a D.C. Circuit matter. Obviously, I think the court this morning had some concerns about the complexity of this program and whether it was fairly discernible to the regulatory community. And we think that, or we hope that we persuade them that on this precise issue it was pretty clear and the D.C. Circuit was the place to do it. And we also argue that the respondents got D.C. Circuit review on this question. But, I think like most things, most arguments, it's not clear how the court is inclined to go on that. I think it obviously, especially early on, had real concerns about the fairness of 307 and, I don't know how close I am to five minutes.

John Echeverria: I just want to pose the question to you, what was the best moment of the argument on that issue --

Sean Donahue: The end. No.

John Echeverria: The most helpful question.

Sean Donahue: The most helpful question? I mean I think it was helpful when Justice Breyer was kind of pointing back to there was this settlement agreement in 1982 that required EPA to propose new regulatory language, propose to amend the 1980 rules that would have added an hourly rate test. And, again, the parties, as with most things in this case, disagree about the impact of that. But if he thought that was potentially significant that may be good for us, because it's so early in time. And we say people read the rule, they saw there was no hourly rate in it, they took it to court. So section 307 though is a tough statute, right? It has some pretty, it can have some pretty difficult to swallow consequences. And courts across, judges across the spectrum have expressed concern about it. What if the agency isn't clear until later and then you sue and it raises due process concerns sometimes. And I think with Duke and its excellent lawyers have done a very good job of putting the facts and regulatory history in that frame of unfairness, of whipsawing. And we think that, while it's excellent lawyering, it doesn't fit the law here and the real developments, but that's what the adversary process is about.

William Brownell: Thank you, John. And thank you, Sean, for the compliment. As usual, there are two sides to an issue. But let me first say that one of the interesting things about this case is that the regulatory and the legislative history does cover about 35 years. I've said it before when I've talked about this case, that some of the attorneys that are working on this case weren't even born when the first set of modification regulations were issued back in 1971. This program has a lot of history. On the jurisdictional issue, the case focuses on these 1980 major modification regulations. And we'll talk more about the merits a little later. What has always been curious to me about the way the jurisdictional issue is postured in this case is that it really collapses into the merits issue. The argument on jurisdiction is that this 1980 regulation is clear. It can have only one meaning. And, therefore, when the court adopted Duke's view, which happened to be EPA's contemporaneous view, and we can talk about that a little bit more, when they adopted that view of the regulation they, in effect, invalidated it. And that's something only the D.C. Circuit can do. I think when you're talking about moments in the argument this morning, one of the interesting moments was when the comment was made that these regulations are clear. And everyone sort of smiled and I think several of the justices chuckled a little bit because if there's one thing you can say about this regulatory program, there's very little that would tell you that there can only be one answer to this question. And, in fact, EPA did not answer the question in the way that petitioners do, back in 1981 and '82, when they were providing guidance on how this program should be implemented. So the argument this morning I didn't think spent double lot of time on jurisdiction because the collapses so readily into the merits issue. And the justices went pretty quickly to the merits. On the challenges that have been filed in the D.C. Circuit, which was the other point that received a little bit of attention, industry did challenge the 2002 rules that were issued by EPA. And they raised a challenge to the 1980 rules, which has sort of been used in an attempt to say that industry already had its day in court in the D.C. Circuit. What happened with respect to that challenge was that industry said this is how we understand the 1980 rule. This is how we've always understood it. It's exactly how EPA explained it to us when the rule was issued back in 1980. Therefore, if this rule, in fact, had the meaning which is being attributed to it in the enforcement actions, we had no notice or comment, opportunity to comment on a rule with that meaning back in the 1980 rule making. So the rule's invalid for that reason. D.C. Circuit never reached that challenge to the validity of the 1980 rule because the court never spoke to the meaning of the 1980 rule. And, in fact, said that that's an issue better left for other courts where there's a more developed record on which to evaluate the appropriate meaning and application of that rule. So it wound up just throwing that right back to the local enforcement courts and the local circuits, like the 4th Circuit. Another interesting thing about this case is that the rules that really are being applied here are state implementation plan rules developed by North Carolina and South Carolina. They developed these rules to implement the part 52, part 51 EPA regulations back in 1982. State implementation plan regulations are, of course, subject to challenge only in the local circuit, in the 4th Circuit. So one way or the other, through the enforcement case or through the meaning of these regulations, you get to the 4th Circuit. Another interesting thing I think during the argument this morning was Justice Kennedy's concern about the 307(b), and I think Sean alluded to this a bit. That Justice Kennedy was concerned with a position that would require a court to enforce a rule that was clearly contrary to law. A rule is issued. It applies to a variety of companies. It might apply to a company that wasn't even in existence when the rule was issued. We're talking about a program that's been around for 26 years now. Does that mean that a court has to enforce that clearly unlawful rule against the company just because the company did not file the challenge way back when, couldn't file a challenge way back when, in the D.C. Circuit? And that concerned Justice Kennedy a lot, I thought, during the argument this morning. And I think is a reason why judges and these justices would give a very careful reading to 307(b) in terms of precluding the ability of a District Court in an enforcement case to really say what the law means, to define the meaning of the law. So, John, that's ...

John Echeverria: What would you have made of the question to counsel for the United States, the Counsel of the United States said the solution to that problem was to file a petition with the EPA and ask them for a clarification of what the law was and to proceed through that route?

William Brownell: And I think one of the justices commented at that point, do you mean while they've got an enforcement action pending they've got to go and file an ancillary action?

Sean Donahue: Webco. Why couldn't you have done it in 1988? Could you? I mean I honestly don't know. Could you have gone under, you know, the late arising grounds? Now that the case is submitted if they ask for supplemental briefs on this then I won't use anything you say. I have witnesses. And this may be totally out of bounds, but just, and I don't have a clear view on it.

William Brownell: Right.

Sean Donahue: But the late arising grounds provision of 307, that it says if there is an action that you could not have challenged, then you have to file a petition within 60 days in the D.C. Circuit. And you would say you weren't a party in Webco? And so… William Brownell: That, to me, raises all sorts of uncertainties about what is the action and what is the time you file and when you have to file and if there's an enforcement action, where the agency is asserting that this is the meaning of the regulation, then why doesn't that court have the authority to determine the meaning?

Sean Donahue: The theory, and this is maybe something I should have put in the brief, but the theory would be that the action was the 1980 rules. You say it wasn't clear. EPA and the Webco remand says we're considering utilization. We think it's consistent with the rule and with the 7th Circuit, you disagree?

William Brownell: Um-hmm.

Sean Donahue: And then you, you know, it's a theory. I don't know. I mean there is a question if it was done in a sort of unclear way, how would you have known? But anyway.

William Brownell: That theory leads to proliferation of litigation. It's also very difficult to raise the issue in the context of a record that's concrete enough for a court to really understand.

Scott Segal: It seems like every enforcement action would become an enforcement action, and if you wanted to raise certain legal defenses, it would also become a petition in the D.C. Circuit. And I'm no expert on 307, but surely it didn't mean we're supposed to two track every enforcement action.

John Echeverria: Can we give Holly her five minutes, and we're almost done.

Holly Gordon: OK. So I obviously take a little bit of a different perspective because I did an amicus brief for the former EPA administrators, Carol Browner and Russell Train. So I'm not speaking on behalf of the Department of Justice and the current EPA. And I'm going to try and follow along with what John's asked us to discuss, what our thoughts are on the oral argument and the justices' perspectives as opposed to discussing sort of the battle between the merits here, which we could spend the rest of this week talking about. So in regard to 307, I guess I was optimistic, I will say, coming in, that that would be the initial decision that the court would really focus on, just on 307. And I'm still quite cautiously optimistic that that will be the case. But as said at the end there, it's really blurring together quite a bit. And I think that the turning point for me was when Breyer asked a question actually and I don't recall what the response was, but he did say in his sort of Breyer-esque way, that the 4th Circuit's decision is hard to defend on the jurisdiction issues. And I thought that was a really important point. From the former EPA administrator's perspective 307 is obviously extremely important because of the streamlining of judicial review. Sean already mentioned the state implementation plan issues, but there're also issues in regard to building enforcement cases. It takes years to build these enforcement cases from EPA's perspective. And if you can go back into the D.C. Circuit and change or invalidate, so to speak, the regulations and have them start all over again after putting years of time and resources into these enforcement actions. I think it poses a definite problem. I will leave it at that since it seems like there's a lot of questions out there.

Scott Segal: First, just a quick word. I'm Scott Segal. I'm an attorney at Bracewell & Giuliani, which is a Texas-based firm. We filed an amicus brief in this case on behalf of the International Brotherhood of Boilermakers, which is an AFL-CIO member union, tens of thousands of members nationwide. Their interest in the case had much to do with the fact that if an interpretation of the New Source Review program slows down the ability of power plants to undertake maintenance projects or even delays, through permitting delays, the ability to undertake maintenance projects, not only do boilermakers not get to do those maintenance projects, which they would very much like to do, but a power plant that is not allowed or is otherwise constrained, we'll say from doing maintenance projects, is a workplace that is less safe. And, frankly, that's a long time commitment for the boilermakers. They're the principal union that operates and maintains boilers, as the name would imply, and, therefore, very active in the sector. On the brief also was the Electric Reliability Coordinating Council, so some of the brief also deals with the effects, potentially, on reliability of the grid that are occasioned by the case. ERCC is a group of power generating companies, so we had sort of both labor and management on the same brief. I also serve as director of that organization, and we've been working on these NSR issues for quite some time. It seems like most everything's been, and the first question I ask myself is why? I mean it's a nice enough court, you know, but why there? Why exclusive jurisdiction? And there are some institutional reasons that have been discussed here that I think make sense. But I think you'd have to agree that those institutional reasons seem more apropos when you're talking about a final agency action that arises in the rulemaking context. Everything talks about the uniformity, for example. That sort of makes more sense. What context are we dealing with here in Duke Energy? Is this the New Source Review case being brought up, the program being brought up for the first time to the high court? No. It's been dealt with several times. This is an enforcement case. So a question that ought to go through everybody's minds is who sued who and where? Duke Energy didn't sue the Environmental Protection Agency, the Department of Justice, certainly not Environmental Defense. Why would anybody want to do that? They're not doing this suing. This suit was brought in the Middle District of North Carolina by the United States federal government as an enforcement action. Duke wins in the District Court. Duke wins in the Circuit Court of Appeals. And then a funny thing happens between the Circuit Court of Appeals and the Supreme Court. All of the sudden the government and Environmental Defense, who is an ally in the case, is not so sure there's jurisdiction anymore. Now isn't that intriguing? So after Duke is sued in the Middle District of North Carolina and wins twice, then all of the sudden jurisdiction begins to evaporate ethereally around them as the case heads for Washington. That, to me, seems to work in unfairness. Why? Because it seems extraordinary to me that the government can come into your Federal District Court, sue you to enforce the law, and you raise fact defenses, but when you raise certain legal defenses they go but, but, but, but, but…what are you doing talking about that in this court? That seems to me to work in unfairness and I think it troubled some of the justices. I, of course, have grossly oversimplified it, but heck, that's what I do for a living.

William Brownell: I think that was just what was troubling Justice Kennedy.

Scott Segal: Now the other point I want to make is, one is to long-term ramifications. I admit to being an armchair politician or politico or something like that. And one thing I would say is today the environmental community is saying rigorously enforce 307(b). You make sure that when those geographically determined Circuit Courts of Appeal get into the business of Clean Air Act stuff that they stick to the straight and narrow. But I can imagine a future day, sometime in the future, which all future days are, I can imagine a case coming out of the 9th Circuit, for example, with all the bells and whistles and everything. Just a perfect case for ED or the Stamford clinic, whoever might want to have brought the case. And what disappointment would there be. There would be no joy in Mudville if all of the sudden they said, hey, you remember Duke Energy? It's a funny thing, because we ruled 307(b) was as muscular a provision as you can find in the Clean Air Act in that 9th Circuit case, we're tearing it up. I'm sorry, it was inadequate. So the point is this sometimes I think on these jurisdiction arguments it's like the dog chasing the garbage truck. The dog often doesn't know what to do when it catches it. So that's, I guess, my 80,000 view.

John Echeverria: Why don't we move to the second, I know there'll be lots of questions, but you're going to have to hold it, Richard, because we're going to have to move to the second issue, which is the merits of the dispute, which, as I understand it, is whether or not under the PSD program, the Clean Air Act and the regulations impose an absolute cap on the amount of emissions which was allegedly violated in this case. Or, instead, whether it focuses on the hourly rate of emissions, which apparently was not violated. So with that, Sean.

Sean Donahue: OK, I'm going to do like they do in the political debates and go back to something.

John Echeverria: You attacked my mother! No.

Scott Segal: Within your five minutes of course.

Sean Donahue: Within my five minutes. I mean in what Scott just described, 307(b) would mean nothing because what it says is regulations come out, go to the D.C. Circuit, and then the regulations are treated as valid. And I think the environmental community, in this case, feels that in general we have a stake in this sort of orderly elaboration of the law. And then if everything is open for re-litigation all the time, environmental law and environmental protection systematically loses because of resource disparities. On the merits, it's an interesting question, if the '77 act grandfathers existing sources. It doesn't say that it grandfathers their capacity. It says, instead, that they don't have to get permits, but they do when they undergo a modification. And we think the language this statute actually uses is awfully broad. And the D.C. Circuit has said that recently, a couple times as well, and that is any physical change that increases the amount emitted. And we think that the natural interpretation of this sort of combination of language and statutory and legislative intent is that your plant is not immediately subject to a retrofit requirement, but you're not granted perpetual immunity from the program, as the D.C. Circuit put it long ago in the Alabama power case. And so that if your plant requires very substantial physical renovations and the effect of those is to increase the amount of emissions actually in the air, compared to before you did the modifications, then the statute's covered. The contrary view is that it's a capacity test. That whatever the maximum design capacity or maximum hourly rate that your plant was capable of, you're entitled to continue to emit that without doing PSD. And I think EPA, it's interesting that EPA is now considering going with something like that approach, because EPA in the past has said, pretty clearly, that approach would sort of eviscerate the application of the modification standard to PSD. And maybe that's the idea. It's somewhat this sort of avowed, acknowledged, EPA said we think other programs kind of do the job. But we think PSD remains on the books, the modification provision remains on the books, they're really important. They do a lot, it does a lot of work that other programs don't do. And without, abandoning the actual annual test would really be a significant loss for air quality.

John Echeverria: Can you comment very briefly on Justice Stevens' line of questioning and what you think he was trying to accomplish and what he might have accomplished?

Sean Donahue: About?

John Echeverria: About the different ...

Sean Donahue: Different terms?

John Echeverria: And, of course, performance for environments and that sort ...

Sean Donahue: I think, at least what I recall, and it's pretty much of a blur right now, but was he was asking, there were sort of two different statutory theories in play. One was Congress used the same statutory definition of modification in two quite different programs. And by doing that it required that EPA have regulations that were identical as between the two. EPA can design those regulations a lot of different ways, but they have to be the same. And that's what the 4th Circuit said. The other position, which has really been Duke's view on this, because there are parts of the PSD regulations that they really like, that aren't in the NSPS, is that Congress mandated, statutorily mandated a maximum hourly rate type test, but left room for differences elsewhere. And I think Justice Stevens was trying to pin down that distinction. Is there one particular substantive result the agency has to use or could it shift around? But I'm not sure that I'm capturing it.

John Echeverria: Bill?

William Brownell: I think the starting point to understand Duke's position, as well as the regulations at play, is we're really talking about a preconstruction review program with New Source Review Prevention of Significant Deterioration. So what Duke has really talked about in the briefs it's filed, and the centerpiece of its argument is what is the construction trigger for New Source Review or PSD? And that's been portrayed in various ways in different briefs, by Environmental Defense and the government is hourly versus annual. But the nub of the concept is what is the construction trigger for New Source Performance Standard, for New Source Review, for PSD? And this is where some of the regulatory history comes in. If one goes back to 1971, when the modification concept was first implemented, modification had one meaning. It was activity that increases emitting capacity, measured as hourly rate, unaffected by increased hours of operation. That's how modification was implemented in 1974 and '75, again clarification of NSPS, but also for the regulatory PSD program. Modification was one concept. You've got to have activity that increases emitting capacity in those regulations measured as hourly rate. The first time this major modification, which is a different word. We're talking about modification and major modification. The first time major modification came up it was as a regulatory concept in the 1976 Nonattainment New Source Review Interpretive ruling. And it very clearly came up as a concept that limited the applicability of more stringent New Source Review requirements than modifications. We can apply these more stringent requirements only to modifications that are major, not to modifications that aren't major. That was the sole purpose of major modification when the term first came up in 1976. And then major modification was defined then as an increase in allowable emissions. And that evolved over time, in '78, to an increase in potential emissions, annual emissions, and then an increase in actual annual commissions. But a major modification was a modification that increases annual emissions by an amount that exceeds a certain threshold. So where does that leave you in 1977? Before 1978 all modifications were subject to Prevention of Significant Deterioration. There was no major modification category. Under the 1970 PSD regulatory program all modifications were subject to PSD. Then in 1978 and 1980 this major modification concept was adopted for PSD that said, OK, if you've got a modification, and the definition of modification wasn't changed, it's still activity that increases emitting capacity, you only get subject to these more stringent requirements if you're a big one. There's an interesting applicability discussion in the preamble to the 1980 PSD rules that explains it, just that way. We're applying this program to sources that are major sources. Similarly, we're doing the same thing for modifications. We're applying this program to modifications that are major modifications. So the essence of Duke's point throughout this litigation has been that you need that construction activity that is defined by modification to trigger the major modification analysis. And curiously enough, I thought there was a lot of interesting back-and-forth on this during the argument this morning, that is how the EPA said the program is to be implemented. That's what the program means in 1981, in these Ed Reich applicability determinations that have received so much attention. Interestingly, in the amicus brief filed by the state of Alabama and a number of other states on Duke's side, they said this is also what EPA was telling us, the director of air programs in Region 4. They said, and they attached the memorandum, told us that this is what the program means when we were implementing our SIPs. They adopted the SIPs that govern in this case back in 1982 when the only meaning of this rule was the meaning given to it by the Reich applicability determinations, the guidance out of Region 4. So that's why these states have filed a brief saying, hey, that's what we thought the program always meant as well. I think Justices Scalia, Alito, and even Stevens, had a number of interesting comments and questions on that. Of course, you know you'll hear, as we go through further discussion and response to Q&A, that the other side feels that Reich wasn't really right or that you might be able to read the Reich determinations differently. But they pretty clearly say, whatever you rely on in them, that increased hours don't count. It's about increased hourly rate. The other thing I find interesting about this whole development of this case is that we tend to forget that this case has been going on for a while. In the early stages of the case we asked EPA, through interrogatories, OK, tell us, where do we find your rules, your guidance, your applicability determinations? They referred us, in response to that interrogatory, to the rules of course, and then to the Region 7 website, where EPA maintains an NSR policy and guidance database. What's in that database? The Reich determinations explaining what this rule means. That database has about 550 documents in it overall, 105 of those are authored by Ed Reich. He was the guy that was responsible for ensuring uniform guidance and determinations under NSR, back when this program was first being implemented. Now, of course, if the response is, well, Reich was wrong on these applicability determinations that industry relied on, what else was he wrong on? Can we rely on anything in this authoritative database? So that just frames up this case a little bit. There was an understanding. The industry understood the rule to be triggered by modification activity. Major modification is a subset of it. It gives you a way to avoid the more stringent requirements of New Source Review if you're a modification, as long as you can offset emissions increases on an annual basis. I thought the justices, at least a number of them, were interested and had that understanding of the rule during the argument this morning. John?

Holly Gordon: Is everyone following along out there? I want to back up just a little bit. I think, from the perspective of former EPA administrators and the brief that I wrote we would argue that there is complete consistency in what EPA did. I was a bit surprised, I will say, by the focus in the court this morning, on the Reich memos. I think that's a really minor point and I'm optimistic when they go back and read the papers that they will realize that. And I think that I set that out pretty well, that there is consistency over the last 25 to 30 years in how EPA has interpreted this. But what I want to talk about for a minute is what we're really getting at here. And one thing that said was that increased hours don't count. Only increased hourly rates count. And I know for some of you sitting out there that that doesn't really make a lot of sense to you and it's a little bit confusing. And I will steal from my colleagues over here and simplify things a little bit, so understand that this is absolute simplification. But think about this for a minute, if you're operating at 40 hours per week and you're emitting 10 tons per hour, that's 400 tons per week. Correct me if my math is wrong, because I'm not very good with calculations. I'm not a scientist. Now if you increase to 80 hours per week after a major modification, but you keep your emissions at 10 tons per hour, now you're emitting 800 tons per week. If you multiply that out by a year, and I'm not going to do that right here, now your emissions, times 52, now your emissions have significantly increased. But you've kept your hourly emissions constant. Now if I look back at the Clean Air Act, as it was enacted in 1970, the purpose of the Clean Air Act was to maintain air quality in places where there was adequate air quality. That's what Prevention of Significant Deterioration does. And what EPA is trying to achieve is to maintain that air quality in PSD locations. Now if you increase your emissions, but you maintain your hourly rates, I don't see how you're maintaining that air quality. So if you want to look at the policy and the purposes of the Clean Air Act, that's what, at least in my opinion, the former administrators are trying to achieve. So if you want to go back and forth arguing consistency and fair notice and all of those issues, it just becomes unclear to me. And I believe that Justice Breyer said this at some point. He said something like doesn't that make twice as much pollution? So that, to me, was the turning point, at least where I felt where things were changing and he was really getting it. I think it's important to keep in mind the policy issues behind the Clean Air Act and what they were trying to achieve. I'll leave it there.

Scott Segal: Well, the example given is snuck in under either a routine maintenance theory or exception, snuck in under some de minimis rule, a power plant operator managed to double the capacity of the power plant. With respect, I believe that would trigger New Source Review.

Sean Donahue: Hours.

Scott Segal: Now let me make a point though, which is that that type of emissions increase is well covered within the Clean Air Act with respect to, now, the Clean Air Interstate Rule, in the past, the Acid Rain Program and it's still in full implementation, the state implementation plans being implemented pursuant to the new National Ambient Air Quality Standards. In fact, you know what all of those programs have in common? Those are emissions reduction programs. Those are actually regulatory programs. NSR, of course, is not. NSR is not intended to ring emissions reductions where none otherwise obtain. NSR is an enforcement program. And society pays a huge price when we misuse an enforcement program to gain emissions reductions. The Congress and the EPA are very good at writing programs that reduce emissions, but there's a right way and a wrong way to gain emission reductions. If we use the NSR program in this fashion, look at some of the perverse incentives that are created. Number one, there is no doubt, in fact, when I first heard Sean describe it, he said this complex array of tubes, was that in the oral argument today or ...

Sean Donahue: I might have said that.

Scott Segal: Yeah, I think so.

Sean Donahue: Well, that's how I understand it.

Scott Segal: What? Exactly. And that's fine.

Sean Donahue: The sum total of it.

Scott Segal: And that's fine. I respect that, I do. This complex array of tubes, the theory then becomes the replacement of a single two out of miles of tubes is sufficient to trigger the program.

Sean Donahue: No, no, it's maintenance, and it wouldn't increase in emissions.

Scott Segal: Well ...

Sean Donahue: This is replacing the motor in a car. I'm sorry.

Scott Segal: No, that's wrong. That is absolutely wrong. And, in fact, the tinkers to Everest, the chance analysis that's used to describe single tube replacements would have them increasing emissions because a plant whose tube blows out is a plant that operates less hours. This is the seductive problem with an hours of emission, with an hours of operation test.

Sean Donahue: Scott ...

Scott Segal: No, no, no, let me just complete my analysis. You can blow holes in it later. I believe we were at the point of perverse incentives. Contrary to popular belief lawsuits do not clean the air. What cleans the air is the installation of technology. And in a world where we have emissions trading programs, which are very good at incentivizing cost effective and fast reductions in emissions, if the alternative is a description of the universe which is perpetual noncompliance and perpetual litigation, that actually creates disincentives to make commonsense changes at power plants, which both reduce emissions and enhance workplace safety. Nobody stood up today at the Supreme Court or any time, I would hope, in the last several years and said this is a discussion, a real world discussion between whether or not there should be lots of pollution and nothing should be done to address it or whether or not there ought to be rigorous enforcement of the law. That is a false choice and it is not the choice presented in this case. In either event air emissions are controlled. The question is what is the better way? What is the way that's most cost effective, that incentivizes the fastest reductions, that is more consistent, frankly, with Environmental Defense's own positions? You know, ED is, I give a lot of credit to the organization. Back when it was EDF it was one of the few organizations to step up and say, yes, cap-and-trade programs do work and we should work with them, see e.g. the 1990 Clean Air Act Amendments. But then today we talk about an NSR program so hidebound in their interpretation that it interferes with the operation of cap-and-trade programs. That's the best way to reduce emissions. Not by going case by case by case. In fact, in the trade press recently I saw an interview with a leading light of air quality, and no it wasn't me, I saw an interview which even went to the point of saying we're not sure you can attribute a single ton of reduced emissions to NSR enforcement cases or settlements, because those same tons are double accounted for in the cap-and-trade programs. So this is about litigation and whether we ought to have lots and lots of litigation and what that does to the incentives to reduce emissions faster.

John Echeverria: Can we do one final round of questions, which is can you give us your prediction on how the case will come out? I can anticipate what your answer will be, but a bit more broadly talk about what this means for the future of this case, for the Duke plants that are at issue with this case, and, more broadly, for this long-running controversy over New Source Review that has been consuming Washington for the last decade or so. We can do the same order.

Sean Donahue: Same order? I'm not going to predict, but I have said, you can draw inferences, I'm going to run one ultra-marathon for every vote we don't get in the case.

John Echeverria: Wow!

Sean Donahue: That's all I'm saying. No, I have no idea. I have no idea and ...

William Brownell: I will not.

Sean Donahue: I would say that if the court had spent all 30 minutes of Carter's time yelling at him and had only smiled and nodded, or if it had only been the other way around, I think this is a complex case with a sort of jurisdictional question. And then this very complex set of substantive issues, and I'm not sure they've come to rest on it, so I will do the ultra-marathons, but that's all.

John Echeverria: Do you have any thoughts on the broader implications of it, win or loss?

Sean Donahue: Well, I mean there's obviously a lot going on besides this case. Right now there are other cases. There's Synergy that came down. There's a D.C. Circuit decision that the government and industry are considering whether to take up to the court on the equipment replacement rule, which involves a lot of the same kinds of issues of how broadly you're going to sort of exempt from the NSR coverage. So I don't know. If the court were to hold that the NSPS modification test is required by statute that would effect sweeping changes. It would raise the question of a legislative fix. It would obviously require EPA to go back to the drawing board. And there are people in this room who are much more aware of the sort of policy development side than I am.

William Brownell: I'm not going to give you account or explain what the argument might be, but I'm sort of a glass half-full guy. And I'm confident that the 4th Circuit is going to be upheld. Of course, if it is upheld that's the end of the case for Duke, that has implications with respect to the NSR Enforcement Initiative overall. Even if the 4th Circuit weren't upheld, exactly what happens next depends on what the court says, whether it goes back to the 4th Circuit for another crack, whether it goes back to the District Court. Even if it does go back to the District Court there are a variety of issues that would still have to be resolved and could still be resolved in Duke's favor. Including how the emissions issue plays out under the test that EPA came up with during the course of the enforcement action, and the routine repair and replacement issue. So that there's still all of that the pending before the District Court if the case were to go on. As far as what happens going forward, we know that EPA is looking at further rule revisions, clarifications, simplification of the New Source Review program. I really think that this program is going to be revised and clarified in ways that will turn this whole enforcement period into a footnote, maybe a big footnote. But that the policies Scott described are so clear that the way to get the emission reductions is to get them directly by saying, you know, through the Clean Air Interstate program, through all of the other programs out there that exists under the Clean Air Act. These are the reductions. This is how we want to get them. If we can do it through trading that may be cost effective, but there's the authority out there to do it directly. Trying to do it, pardon me? [QUESTION FROM THE AUDIENCE] Industry generally did not challenge it. I believe Duke has a limited challenge, not to the structure of the rule, but that raises an allowance allocation question.

Scott Segal: Well, the rule still has to be implemented.

William Brownell: Yeah. The rule's being implemented. It will be implemented. This challenge, as far as I understand it, we're not representing Duke on that, is to detail of the rule. But that that's the way to do it, not by attempting to use NSR by indirection to get reductions. So I think this does turn into a big footnote, a costly one for the agency, for government, for industry.

John Echeverria: Holly?

Holly Gordon: I'm not going to volunteer to run an ultra-marathon, but I don't think that Sean will need to. I'm cautiously optimistic that they will come back around on the 307 issue. Several of the justices obviously served on the D.C. Circuit, and I do think that they will hopefully come to realize that they have illegally invalidated their regulation and the 4th Circuit shouldn't be upheld.

Scott Segal: Well, I'm feeling a little philosophical, so I'm not going to waste that good philosophy on mere predictions. Cautious optimism, I like that phrase, I will associate it with myself, but turn it around, that sounds all right to me. But I had to ask myself after, what's it been, eight, for me, on this issue, eight years, seven years maybe, I don't know what it's been, what have I learned? Normally when I went to figure out what I've learned about the Clean Air Act I just take John Walke, from the Natural Resources Defense Council to lunch. But instead I made it an introspective question. I looked inward and let me tell you what I think is really at the heart of this dispute, the question of who speaks for the Clean Air Act? Who gets to say what the Clean Air Act is, outside of a judicial context, OK? In my view in 1992, '93, something very curious happened structurally at the Environmental Protection Agency. We divorced enforcement officials from the program offices in which they had operated. In other words, the Air office used to have an Air enforcement office. It was part of the Air office. The Water office had a Water enforcement office. And instead we herded up all of the enforcement folks and put them in their own separate division of EPA. And you have to ask yourself, what is the institutional prerogative? What really is a good day for an office that is only dedicated to enforcement and is divorced from the policy shop at the Environmental Protection Agency? A good day for that office seems to be filing litigation. And I'm not here to tell you all lawyers are bad. It's a law school for god sakes. I've got a JD. That's not what I'm talking about. I'm just saying as a matter of institutional prerogative, they seem intrigued. Their metric for success is inherently litigious. Now whether or not the priority placed on certain flavors of enforcement actions or other flavors of enforcement actions actually advances the ball from a policy perspective, as far as what the Clean Air Act is attempting to accomplish, is not as relevant as whether or not the litigation itself proceeds. By contrast, when one voice institutionally within the agency speaks for the Air Act, the policy shop speaks for the Air Act, and then priorities can be made with respect to enforcement and with respect to regulatory reform or new regulations that may come out, all of it, all pulling in the same direction toward the same goal. That is an inherently more healthy proposition than having two separate offices that have separate motivations try and simultaneously speak for the Air Act. So what I hope we all learned, after we had an opportunity to litigate from 1998 to present over New Source Review, while we had the opportunity to work on the Clean Air Interstate Rule, which some are challenging on implementation grounds, some are challenging on more fundamental grounds. The Clean Air Mercury Rule, which I know doesn't play to quite as rapt an audience, but also is out there. And we had an opportunity to examine, even legislatively, the Clean Air Act. I hope we can agree that it would be better if we had one voice institutionally within the agency speak for the Air Act. Now, you may say, oh, well, that just suits him. Listen to what he's saying. But no it doesn't, because I can visualize a future administration, I bet many of you can too, where the assistant administrator for Air will have different priorities with respect to clean-air policy. But at least from a perspective of both judicial economy and, if there is such a thing, administrative or regulatory economy, it would be better to all pull in one direction than to have multiple voices speaking for the Air Act within the same institution. That's what I've learned from this case. And I'm going to write an article on that at some point.

John Echeverria: Thank you. You can join me in thanking our panelists for a good presentation.

[End of Audio]



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