Update on EPA’s Greenhouse Gas Rulemakings Norman W. Fichthorn Hunton & Williams LLP 2010 American Public Power Association Energy and Air Quality Task Force Spring Meeting April 27, 2010

2  1999: Groups petition EPA for rulemaking on GHG emissions from new motor vehicles  2003: EPA denies petition; determines it lacks GHG regulatory authority under CAA  Litigation on 2003 action: Court of Appeals’ 2005 decision and Supreme Court’s 2007 decision in Massachusetts v. EPA CAA Regulation – Background

3 CAA Regulation – Massachusetts v. EPA  In 2007, Supreme Court rules that: – EPA has authority to regulate – Carbon dioxide and other GHGs are “air pollutants” under CAA – As articulated in its 2003 decision, EPA’s policy reasons for declining to regulate are inadequate – Regulation not mandatory, but EPA response must be consistent with CAA “endangerment” provision

4 CAA Regulation – EPA’s Response  2008: EPA’s Advance Notice of Proposed Rulemaking (ANPR) – Automobile GHG rules could trigger economy-wide Prevention of Significant Deterioration (PSD) regulation of GHG emissions  April 2009: EPA moves toward regulation by proposing “endangerment” finding for public comment  May 2009: White House/California/automaker negotiations result in “National Policy” on auto fuel efficiency and GHG emission limits

5 CAA Regulation – Endangerment Finding  Dec – EPA issues final endangerment finding as predicate to CAA auto regulation  Finds 6 GHGs in the global atmosphere (CO 2, methane, nitrous oxide, HFCs, PFCs, SF 6 ) endanger public health and welfare in U.S.  Finds GHG emissions from new vehicles in U.S. “contribute” to the endangerment

6 CAA Regulation – Motor Vehicle Rules  Sept – EPA proposes GHG emission limits for vehicles under CAA, in conjunction with similar DOT fuel efficiency standards  April 1, 2010 – Final vehicle GHG rules signed  Implications for stationary source regulation – PSD Interpretive Memorandum rule (4/2/2010) – “Tailoring” rule (proposed Oct. 2009; final pending)

7 CAA Regulation – Litigation  Pending challenges to endangerment finding  Filed against EPA by 3 states (Texas, Virginia, Alabama), numerous business groups and companies, public interest groups; intervenors opposing EPA include 14 additional states  18 states, several environmental groups filed motions to intervene in support of EPA

9 CAA Regulation – Litigation  After EPA publishes vehicle rule (probably in April or May 2010), court challenges to the rule are likely from stationary-source sectors and perhaps states, given rule’s PSD effects – EPA says PSD stationary source regulation triggered by vehicle rule will begin Jan. 2, 2011 – EPA: No permit “grandfathering” for GHGs

10 PSD for GHGs  April 2, 2010: EPA publishes final rule on reconsideration of the PSD Interpretive Memorandum – Air pollutant is covered by PSD program when the pollutant becomes “subject to regulation” under Clean Air Act. – The air pollutant becomes “subject to regulation” only when “subject to either a provision in the CAA or regulation adopted by EPA under the CAA that requires actual control of emissions of that pollutant.”

11 PSD for GHGs (cont’d)  PSD Interpretive Memorandum Rule (cont’d) – PSD requirements apply to a newly regulated air pollutant when “a regulatory requirement to control emissions of that pollutant ‘ takes effect.’” – EPA will allow no “grandfathering” of PSD permit applications that are pending at the time GHGs become subject to PSD on January 2, 2011.

12 PSD for GHGs (cont’d)  PSD Interpretive Memorandum Rule (cont’d) – Title V will apply in a similar fashion. – EPA will implement these interpretations immediately in areas subject to federal PSD rules. – EPA will allow these interpretations to be implemented without the need for rule changes or further SIP approval in SIP-approved states with compatible regulatory language.

13 PSD for GHGs (cont’d)  What would it mean to regulate GHGs under the PSD permit program, as EPA has “traditionally” implemented the program? – Statutory 100/250 tons-per-year major source thresholds. – Statutory default significance threshold of “zero.” – By EPA’s estimates: – PSD applicability would increase from 300 to 41,000 permits/yr. – Title V applicability would increase from 14,000 to 6.1 million.

14 PSD for GHGs (cont’d)  October 2009: EPA proposes to temporarily “tailor” the applicability of PSD and Title V to GHGs. – Proposed PSD/Title V major source thresholds of 25,000 tpy CO 2 e. – Proposed PSD significance threshold of 10,000 to 25,000 tpy CO 2 e. – Grounded in “absurd results” and “administrative necessity.”

15 PSD for GHGs (cont’d)  PSD/Title V Tailoring Proposal (cont’d) – Revised thresholds would directly apply in areas subject to the federal programs. – Revised thresholds would immediately apply in SIP-approved states based on: – EPA’s general Clean Air Act rulemaking authority. – EPA’s authority to correct “errors” in prior SIP approvals. – Underlying state laws and rules?

16 PSD for GHGs (cont’d)  PSD/Title V Tailoring Proposal (cont’d) – Feb./Mar. 2010: Administrator Jackson indicates tentative EPA decision to raise GHG major source threshold to 75,000 tpy CO 2 e initially. – In first half of 2011, only sources already subject to PSD for non-GHG pollutants need address GHGs. – “Smallest sources” not subject to PSD before – Final rule expected in the next few weeks.

17 CAA Regulation – What’s Down the Road?  New source performance standards – and existing-source standards – for electric generators and other major industries  National ambient air quality standards? – Dec petition to EPA by CBD and 350.org – Problems with this approach, and EPA’s reaction  What – if anything – will Congress do?