On Nov. 13, 2008, the US Environmental Protection Agency's (EPA) Environmental Appeals Board (EAB or the Board) issued an order that denied review in part and remanded in part a challenge to the Agency's issuance of a Prevention of Significant Deterioration (PSD) permit to Deseret Power Electric Cooperative for construction of a new electric generating unit in Utah (In re Deseret Power Electric Cooperative, PSD Appeal No. 07-03 (Nov. 13, 2008)).

Although the Board rejected the grounds upon which the Agency declined to include a Best Available Control Technology (BACT) limit on carbon dioxide (CO₂) in the PSD permit, it also rejected the petitioner's claim that the Clean Air Act (CAA) requires a PSD permit to include such BACT limits. In remanding the PSD permit to the EPA, the board suggested the EPA consider addressing the issue not in the context of this (and other) individual permitting decisions, but on a national basis.

Background

Deseret sought a PSD permit for a new waste-coal-fired electric generating unit at its existing facility near Bonanza, Utah. The EPA issued a draft permit in 2006; the Utah Chapter of the Sierra Club participated in the permitting process, and submitted comments to the EPA suggesting that if the Supreme Court were to rule in Massachusetts v. EPA that the Agency did have the authority to regulate CO₂ under the CAA, the agency might be required to include BACT limits on CO₂ emissions in the PSD permit. The EPA (Region 8) granted Deseret's permit application on Aug. 30, 2007 (after the Massachusetts v. EPA Supreme Court decision), and declined to include BACT limits for CO₂.

The Sierra Club sought review of the Agency's permitting decision before the EAB, and raised two issues: (1) whether the EPA impermissibly failed to consider alternatives to the proposed power plant; and (2) whether the EPA was required to impose BACT limits for CO₂ because CO₂ is a "pollutant subject to regulation under [the Clean Air Act]."

Alternatives

The Sierra Club argued that Section 165(a)(2) of the CAA requires the permitting authority consider alternatives to the proposed power plant, citing an alternatives analysis set forth in Region 9's comments to a draft Environmental Impact Statement for a similar project in Nevada. The EAB reviewed the language of Section 165(a)(2), finding that the discussion that references "alternatives" specifically applies to the public process that the Agency is required to provide for interested persons to comment on such permits. Nowhere in that section is there an independent obligation for the permitting authority to "conduct an independent analysis of available alternatives," according to the EAB. Slip op. at 22.

The EAB also drew a contrast between the statutory process for PSD permits (required in attainment areas) at issue here, which does not require an alternatives analysis, and the process for issuing nonattainment new source review permits (Section 173(a)(5)), which "clearly requires an independent review of alternatives for permits issued in nonattainment areas." Id.

Finally, the EAB referenced the fact that none of the "alternatives" the Sierra Club identified in its petition were raised/identified by interested persons during the public comment period. Presumably, if interested persons had raised or identified such alternatives in the public comment period, Region 8 would have been required to address them in its Response to Comments document issued as part of the permit decision. In that scenario, such interested persons could have challenged any Agency decision not to adopt the alternatives in a proceeding such as that brought by the Sierra Club.

BACT Limits for CO₂

In its Petition for Review, the Sierra Club took the position that Sections 165(a)(4) and 169(3)--which require a PSD permit contain BACT limits for "each pollutant subject to regulation under this Act"--dictate the EPA must impose a BACT CO₂ limit because CO₂ is a pollutant subject to regulation. The Sierra Club argued that the plain language of the statute precluded the EPA from interpreting the language to exclude CO₂. In support of its position, the Sierra Club cited the Massachusetts v. EPA decision, as well as the 40 CFR Part 75 regulations which impose monitoring and reporting requirements for CO₂ (arguing that such requirements render CO₂ "subject to regulation").

The Agency argued that the decision in Massachusetts v. EPA did not require the EPA to set CO₂ emission limits, and that it had historically interpreted the phrase "subject to regulation" to mean only pollutants that were subject to requirements that actually controlled emissions of the pollutant at issue. Because the Part 75 regulations cited by the Sierra Club only required monitoring and reporting of CO₂ emissions, and not control of CO₂ emissions, the EPA argued it was constrained by its historical interpretation, which prevented the EPA from changing its interpretation.

The Agency cited several sources as evidence of this interpretation, including a 1978 Federal Register preamble, a 2002 rulemaking, and two internal Agency memos from Lydia Wegman and Jonathan Cannon from 1993 and 1998, respectively. The EPA also argued that even if the Part 75 requirements were deemed to subject CO₂ to regulation, the source of the Part 75 requirements--Section 821 of the Public Law, added in 1990 as part of the bill that amended the CAA--is not a part of the CAA in the context of pollutants that are subject to regulation "under this Act."

The EAB evaluated each of the components of the Sierra Club's argument that the plain meaning of "regulation" necessarily required that the Board ignore the Agency's interpretation of that term, ultimately rejecting the premise that the statutory language negates the EPA's authority to interpret "subject to regulation" in the same manner as the EPA. The Board found "no evidence of a Congressional intent to compel EPA to apply BACT to pollutants that are subject only to monitoring and reporting requirements." Slip op. at 63. The Board found the statutory language was broad enough to support several different meanings of the phrase in the context of PSD permitting, thus leaving the door open to agency discretion in interpreting whether CO₂ is "subject to regulation."

The Board analyzed the documents relied upon by the EPA in its argument that it was precluded from imposing BACT limits on CO₂ by its own historical interpretations of the phrase "subject to regulation." In the absence of any document "expressly stating" that "subject to regulation" means subject to a provision that requires actual control of emission, the EAB determined the administrative record of the permitting decision did not support the EPA's position that it did not have the authority to impose a CO₂ BACT limit because of its historical interpretation. The Board reviewed the documents cited by the EPA and concluded that the series of Agency statements were "at best, weak authorities upon which to anchor the region's conclusion" and not "sufficiently clear and consistent articulations of an agency interpretation" to prohibit the Agency from taking the position advocated by the petitioners.

The EAB also rejected the Agency's argument that Section 821 was not part of the CAA, noting that while Section 821 "is not a model of drafting clarity," it contains language that both supports and subverts the EPA's position. Pointing to differing interpretations offered by the EPA in various contexts and proceedings regarding the specific issue of Section 821 and its relationship to the CAA, the Board concluded it could not accept the EPA's interpretation in the context of this appeal, noting that it was unsure what degree of deference a reviewing court would give to the Agency, where it had publicly indicated it was not sure where Section 821 fit into the CAA structure.

The Board remanded the permit to the EPA Region 8 to "reconsider whether or not to impose a CO₂ BACT limit in light of the agency's discretion to interpret, consistent with the CAA, what constitutes a 'pollutant subject to regulation under this Act.'" Slip op. at 63. The Board also noted, however, that it was cognizant of the national scope of this issue, and asked the EPA whether all parties would be "better served by the agency addressing the interpretation of the phrase 'subject to regulation under this Act' in the context of an action of nationwide scope." Id.

The Board clearly favors this approach, suggesting that (a) the Agency should specifically evaluate and address whether the historical interpretations offered by the Agency in fact mandate that the issue be addressed in the broader context of a nationwide action; and (b) it may be more efficient to tackle the issue at the national level rather than seeking to develop the requisite factual record supporting the Agency's position in not only this permitting process (which requires reopening the public comment period), but in subsequent permitting proceedings as well.

Conclusion

The Board's decision does not finally resolve the issue of whether CO₂ BACT limits must or should be included in PSD permits, a result which does little to reduce the uncertainties that project proponents will continue to face. By leaving the key question to Agency discretion, the Board ensures that the debate over this issue will continue.

The Board does provide some guidance for the Agency--if the decision is made not to include CO₂ BACT limits, the basis for that decision must be supported by specific evidence developed for and included in the administrative record, and not simply by general references to broad Agency statements of policy. Further, the Board expressed a clear desire that the Agency consider addressing the issue at the national level, presumably as part of the broader ongoing discussion regarding the regulation of greenhouse gas emissions under existing CAA authority.

As a result, it is likely the question of whether PSD permits should contain CO₂ BACT limits will ultimately be decided by the next administration, although it is not clear whether it will be addressed as a standalone issue or as part of the broader climate change debate. Until then, companies seeking to construct new facilities that are subject to PSD permitting will have to face continuing uncertainty regarding whether the project will be subject to CO₂ emission limits, and the likely prospect that any permit issued without such limits will be challenged.