Utility Air Regulatory Group v. EPA: What’s Really at Stake?

Earlier this week, the Supreme Court heard oral arguments in Utility Air Regulatory Group v. EPA. The case is the first since Massachusetts v. EPA (2007) to examine the extent of the EPA’s Clean Air Act authority to regulate greenhouse gas (GHG) emissions.

The Court is limiting its review to one question:

Whether EPA permissibly determined that greenhouse gas emissions from new motor vehicles triggered permitting requirements under the Clean Air Act for stationary sources that emit greenhouse gases.

In other words, the Court is reviewing the agency’s April 2010 Timing Rule.

According to the Timing Rule, regulation of any air pollutant under any part of the Clean Air Act automatically requires anyone seeking to build or modify a “major” stationary source of that pollutant to apply for a Prevention of Significant Deterioration (PSD) preconstruction permit from EPA or a state environmental agency. The EPA began regulating carbon dioxide (CO2) when its greenhouse gas Tailpipe Rule took effect (Jan. 2, 2011). To qualify for a PSD permit, an applicant must demonstrate that the proposed facility or modification will comply with “best available control technology” (BACT) standards.

Because of the narrow scope of review — the Justices have no intention of revisiting Mass. v. EPA, reviewing EPA’s greenhouse gas Endangerment Rule and Tailpipe Rule, or revisiting the Court’s opinion in American Electric Power v. Connecticut that EPA may adopt new source performance standards (NSPS) to regulate CO2 emissions from stationary sources — some observers conclude that UARG v. EPA is not very important and it really doesn’t matter what the Court decides. Not so.

Because BACT standards are facility-specific, they are more intrusive than NSPS, which apply to industrial source categories. Especially if the regulated “pollutant” is CO2, a byproduct of energy use, BACT is an invitation for bureaucratic micro-management of industrial design and operations. As I discuss in a recent Forbes column:

Because there are no bolt-on commercial technologies to reduce CO2 emissions from industrial processes, BACT for CO2 will consist mainly of facility-specific changes in work practices and equipment to improve energy efficiency. Thus, warns the Energy-Intensive Manufacturers Working Group, a petitioner in the case, BACT for CO2 will empower the EPA and its state counterpart agencies to meddle in “every aspect of a facility’s operation and design that affects either its emission of carbon dioxide or its consumption of energy, because the latter is the primary determinant of the former.” Options listed by EPA include everything from changing light bulbs in the factory cafeteria, to replacing draft fans and water heaters, to basic design changes that, in EPA’s words, “fundamentally redefine the nature” of the facility.

More importantly, overturning the Timing Rule could significantly narrow the scope and slow the pace of EPA regulation of CO2 from industrial facilities.

Consider how long it can take to adopt just one NSPS regulation. EPA committed to adopt CO2 NSPS for new coal-fired power plants and petroleum refineries in Dec. 2010. They still have not even proposed NSPS for refineries. Maybe they’ll finalize the NSPS (“carbon pollution”) rule for new power plants this year. But the rule is beset with legal problems (for example, it is based on the fiction that carbon capture and storage, a technology at least 10 years away from commercialization, has been “adequately demonstrated”). If litigants block the “carbon pollution” rule, then EPA won’t be able to move ahead with CO2 performance standards for existing coal plants.

So here’s the big practical difference. The NSPS route forces EPA to fight for regulatory turf one industry at a time. BACT permitting pursuant to the Timing Rule empowers EPA to impose CO2 regulation on “major” sources throughout the economy in one fell swoop.

The political significance is obvious. If the Court nixes BACT for CO2, EPA will be able to establish far fewer regulatory beachheads between now and Obama’s departure. That would facilitate efforts by future Congresses and the next president to halt or even roll back EPA’s greenhouse gas regulatory agenda.

The administration’s top lawyer in UARG v. EPA, Solicitor General Donald Verrilli, implicitly confirmed this assessment. When asked why EPA can’t just regulate CO2 from stationary sources via NSPS, Verrilli replied (p. 49):

The PSD program was added in 1977 because of dissatisfaction over both the pace and comprehensiveness of the – of air pollutant regulations that were being enacted by EPA under the 7411 standard [i.e. NSPS]; and it’s because under 7411 EPA has got to go one source at a time. It has got to do power plants; then it’s got to do refineries; then it’s got to do the next thing and the next thing. And so EPA hadn’t gotten standards in place for all the different sources, and the point of — of the PSD program is to put in place an additional requirement. [Emphasis added]

In short, overturning the Timing Rule could buy time for EPA opponents, positioning them to pursue a more aggressive counter-offensive after Obama leaves office.

Of course, there’s no guaranty the Court will rule in favor of petitioners. And for petitioners to win, the Court must not only vacate the Timing Rule, but also hold that BACT/PSD regulation does not apply to CO2. A compromise ruling, whereby the Court limits CO2 permitting requirements to sources already subject to BACT/PSD for other pollutants, would still allow EPA to impose CO2 regulation on multiple industries at one stroke.