March 01, 2014

EPA greenhouse gas rules at stake in U.S. Supreme Court

Ann Carlson and Megan Herzog

The U.S. Supreme Court is considering an important challenge to the Environmental Protection Agency’s (EPA’s) greenhouse gas (GHG) air permitting rules under the Clean Air Act (CAA). At stake in Utility Air Regulatory Group v. EPA (one of six related cases on which the Court granted certiorari) is the validity of EPA’s rules for stationary sources of GHG emissions under the Prevention of Significant Deterioration (PSD) provisions of the CAA. The petitions challenged the D.C. Circuit’s unanimous decision upholding the rules in Coalition for Responsible Regulation v. EPA, 684 F.3d 102 (D.C. Cir. 2012).

The Supreme Court let stand some very important portions of the D.C. Circuit’s opinion, including EPA’s so-called “Endangerment Finding” and standards for GHG emissions from automobiles. The Court granted cert on just one issue: “Whether EPA permissibly determined that its regulation of greenhouse gas emissions from new motor vehicles triggered permitting requirements under the Clean Air Act for stationary sources that emit greenhouse gases.” 134 S. Ct. 418 (Oct. 15, 2013). The case involves a complicated question of statutory interpretation that will begin to answer just how extensively the CAA should be applied to GHGs.

A brief history of federal greenhouse gas regulation

Utility Air is the culmination of a protracted and complex legal struggle regarding federal regulation of GHGs. In Massachusetts v. EPA, 549 U.S. 497 (2007), the Supreme Court found that GHGs are air pollutants subject to regulation under the CAA and ordered EPA to determine whether the pollutants may reasonably be anticipated to endanger public health and welfare. EPA subsequently made an Endangerment Finding and also found that anthropogenic emissions of GHGs—including motor vehicle emissions—significantly contribute to global climate change. The Court will not review the Endangerment Finding, which the court of appeals upheld.

Following the Endangerment Finding, EPA established GHG emissions standards for new cars and light trucks (the “Tailpipe Rule”). The Court has also declined to review the Tailpipe Rule.

Under EPA’s historical interpretation of the CAA, regulation of vehicular GHGs automatically triggers regulation of stationary sources of GHGs under two other sections of the CAA. First, the PSD permitting program requires preconstruction permits for “major” new and modified stationary sources in certain areas. PSD permits require sources to install the best available control technology to reduce emissions of regulated pollutants. The CAA classifies as “major” any source that annually emits, or has the potential to emit, 250 tons or more of any air pollutant, with a lower 100-tons per year threshold for certain industrial source categories. (Similarly, Title V of the CAA requires operating permits for sources that emit, or have the potential to emit, 100 tons per year or more of any air pollutant, but Title V permits do not impose independent pollution control requirements.) EPA has interpreted “any air pollutant” to mean any pollutant regulated under the CAA. Because EPA regulated GHGs through the Tailpipe Rule, GHGs therefore constituted a pollutant under the CAA, and EPA accordingly determined that the PSD program applies to GHGs.

EPA faced a quandary about the application of the PSD definition of “major source” to GHG emissions. The statutory emissions thresholds are not problematic in the context of pollutants such as lead or hydrogen sulfide, as only fairly large industrial emitters meet the thresholds. If applied to GHGs, however, millions of small sources like apartment buildings, schools, and small businesses could be subject for the first time to the CAA’s permitting requirements. EPA determined that immediately regulating millions of additional stationary sources prior to streamlining the permitting programs would be extremely expensive and administratively burdensome. Consequently, EPA issued the “Tailoring Rule” to phase in the statutory thresholds for permitting over time, beginning with the largest emitters (e.g., power plants and large industrial sources). Under the Tailoring Rule, only sources with annual emissions of 75,000 or 100,000 tons or more, depending on the circumstances, are subject to PSD and Title V.

In Coalition for Responsible Regulation, the court of appeals dismissed challenges to the Tailoring Rule for lack of standing. The Court has now granted review of EPA’s determination that regulation of vehicle GHG emissions triggers the application of PSD and Title V permitting programs to stationary sources.

The question before the Court: Do the CAA’s permitting programs apply to stationary sources of GHGs?

The main source of controversy between petitioners and EPA is the scope of the PSD program. The CAA states that PSD applies to major new and modified sources of “any air pollutant.” See 42 U.S.C. § 7479(1). EPA historically has interpreted “any air pollutant” to mean that PSD applies to sources of any air pollutant regulated under any section of the CAA. Because GHGs are regulated under the Tailpipe Rule, EPA concluded that PSD applies to GHGs. EPA argues that this interpretation is compelled by the plain language of the statute and thus, under the familiar canon of statutory interpretation defined in Chevron v. Natural Resources Defense Council, 467 U.S. 837 (1984), Chevron Step One applies.

Petitioners argue for several alternative—and conflicting—Chevron Step One interpretations of the CAA. One group of petitioners, Utility Air Regulatory Group, Energy-Intensive Manufacturers, Southeastern Legal Foundation, the State of Texas, and the Chamber of Commerce, argues for interpretations that would completely gut EPA’s rule. The other interpretation, from the American Chemistry Council, would still subject the vast majority of stationary sources to the PSD permitting requirements for GHGs.

The first set of arguments contends that the structure of the PSD program and the unique features of GHGs demonstrate that PSD cannot sensibly be applied to GHGs. Coalition for Responsible Regulation (Coalition) claims that PSD applies only to the subset of pollutants regulated as “criteria pollutants” under sections 108 and 109 of the CAA. Greenhouse gases are a regulated pollutant, but EPA has not classified them as a criteria pollutant. EPA must set National Ambient Air Quality Standards (NAAQS) for criteria pollutants, and states must develop State Implementation Plans to achieve or remain in compliance (“attainment”) with the NAAQS. The PSD provisions require new and modified stationary sources in attainment areas to obtain permits; the Coalition argues that the purpose of PSD permitting is to ensure that states do not authorize the construction of new emissions sources that would cause the state to exceed the NAAQS. Because PSD is linked to the NAAQS, and EPA develops NAAQS for criteria pollutants only, the Coalition contends that it does not make sense to apply PSD to pollutants like GHGs that are not criteria pollutants. Utility Air Regulatory Group, Chamber of Commerce, Energy-Intensive Manufacturers, and Southeastern Legal Foundation argue that it would be absurd to apply the PSD program to GHGs because GHGs do not concentrate locally or produce exposure-related harms. Many petitioners further argue that GHG sources should not be regulated under the PSD program because EPA determined that “absurd results” would occur if PSD and Title V were implemented immediately at the statutory thresholds.

As a related argument, Texas and several other petitioners rely on FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120 (2000), to suggest that Congress implicitly exempted GHG emissions from the PSD and Title V permitting programs. In Brown & Williamson, the Court held that the overall structure of the Federal Food, Drug, and Cosmetic Act, coupled with subsequent tobacco-specific legislation, evidenced Congress’s intent not to regulate tobacco products. Petitioners claim that Brown & Williamson should lead the Court to similarly reject “onerous” GHG regulation under the CAA.

The American Chemistry Council’s alternative Chevron Step One argument is that only those facilities already required to have PSD permits because they emit threshold amounts of criteria pollutants are required to install best available control technology for GHGs. The vast majority of GHG emissions EPA seeks to regulate would be covered under this interpretation, but new sources that emit only GHGs and not criteria pollutants would be exempt.

Given the CAA’s use of the expansive term “any air pollutant,” the petitioner groups may face an uphill battle. EPA’s interpretation of the term is further supported by the fact that other provisions of the PSD program impose requirements for non-criteria pollutants. For example, under 42 U.S.C. § 7475(a)(4), permitted sources must install “the best available control technology for each pollutant subject to regulation under [the CAA]”). Since GHGs are subject to regulation under the mobile source provisions, § 7475(a)(4) appears to apply. See also 42 U.S.C. § 7475(a)(3)(C) (subjecting permittees to requirements related to “any other applicable emission standard” under the CAA).

But at least four justices voted to grant cert in the case, evidence that they may not agree with EPA. It is also possible that the Court could reject all of the “plain meaning” interpretations set forth above and find, instead, that the PSD provision is ambiguous. Chevron Step Two would then kick in, requiring petitioners to show that EPA’s interpretation of the statute is unreasonable. Fundamentally, petitioners’ Step Two argument is that applying the PSD provisions to GHGs will lead to absurd results because Congress clearly never contemplated applying PSD permitting provisions to very small sources of GHGs like apartment buildings and small facilities. Notably, however, if the Court were to reach Chevron Step Two, EPA’s longstanding regulations extending PSD to non-criteria pollutants should receive deference and present a significant hurdle for petitioners.

The potential impact of the decision

Although the Supreme Court granted cert only on the single question specified above, it seems possible that, if the Court rules that PSD applies to GHG sources, it may then move on to the question of whether industry or state petitioners have standing to challenge EPA’s implementing rule. The Court has focused significant attention over the last two decades on the threshold jurisdictional question of standing. The court of appeals below held that industry and state petitioners could not establish that they had been injured in fact, as required by standing doctrine. The lower court reasoned that petitioners were helped rather than injured by EPA’s initial application of permitting programs only to very large sources, which had the effect of lessening the regulatory and administrative burdens both on implementing states and small businesses.

The dismissal on standing grounds allowed the lower court to avoid ruling on the merits of the Tailoring Rule. If the Supreme Court reversed the court of appeals’ ruling denying standing, presumably it would remand the case to the court of appeals to determine the validity of the rule. The central legal question about the Tailoring Rule is whether EPA can lawfully phase in the applicability of PSD and Title V over time, even though the CAA explicitly states that sources that emit or have the potential to emit 100/250 tons per year or more of a pollutant are subject to the permitting programs.

Ironically, a win for petitioners on either the question of whether the PSD provisions apply to GHGs or whether, if remanded, the Tailoring Rule is valid would not necessarily mean an overall reduction in federal regulation of GHGs. For example, if the Court reasoned that PSD applies only to criteria pollutants as some petitioners have argued, such a ruling might embolden environmentalists to push EPA to define GHGs as criteria pollutants. Environmental groups petitioned EPA in 2009 to ask the agency to do precisely that but have not pressed EPA to rule on the petition pending resolution of challenges to EPA’s other GHG regulations. Yet, section 108 of the CAA states that the EPA Administrator “shall” categorize an air pollutant as a criteria pollutant if its emissions “cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare . . . .” and “result[] from numerous or diverse mobile or stationary sources.” EPA has already determined in its Endangerment Finding that GHGs from numerous sources endanger public health and welfare. Listing GHGs as criteria pollutants would trigger a far more stringent regulatory program, requiring EPA to set a national pollution standard (in the form of a NAAQS) for GHGs, and requiring each state to implement a program to control a broad range of GHG sources.

The bottom line, then, is that the Supreme Court’s decision will be an important next step in defining how far EPA can extend the CAA to regulate GHGs. The decision will by no means, however, be the final word.

Ann Carlson and Megan Herzog

Ann Carlson is the Shirley Shapiro Professor of Environmental Law and the co-faculty director of the Emmett Center on Climate Change and the Environment at UCLA School of Law. Megan Herzog is the Emmett/Frankel Fellow in Environmental Law and Policy at UCLA School of Law. The authors served as counsel for amici curiae South Coast Air Quality Management District and the Emmett Center on Climate Change and the Environment in support of respondents in the subject case, Utility Air Regulatory Group v. EPA.