1. Latham & Watkins operates as a limited liability partnership worldwide with affiliated limited liability partnerships conducting the practice in the United Kingdom, France and Italy and affiliated partnerships conducting the practice in Hong Kong, Japan and Singapore. Latham & Watkins practices in Saudi Arabia in association with the Law Office of Mohammed Al-Sheikh. © Copyright 2010 Latham & Watkins. All Rights Reserved. EPA Regulation of Stationary GHG Sources Bob Wyman ROBERT.WYMAN@LW.COM August 7, 2010

2. Potential Sources of Authority Endangerment Finding Required NAAQS (§§ 108-10) NSPS (§ 111) NESHAPS (§ 112) Int’l Endangerment (§§ 115) “Regulated Pollutant” Requirements PSD (§§ 165,169) US emissions cause or contribute to air pollution reasonably anticipated to endanger foreign public health or welfare Foreign country reciprocity required SIP tools available (fees, marketable permits, auctions)

3. Potential Sources of Authority Endangerment Finding Required NAAQS (§§ 108-10) NSPS (§ 111) NESHAPS (§ 112) Int’l Endangerment (§§ 115) “Regulated Pollutant” Requirements PSD (§§ 165,169) US emissions cause or contribute to air pollution reasonably anticipated to endanger foreign public health or welfare Foreign country reciprocity required SIP tools available (fees, marketable permits, auctions) Likely Paths Forward plus?

4. Near-Term: PSD and BACT Note – Nonattainment NSR does not contain similar “regulated pollutant” language Applicability of PSD to GHG Sources Controversy regarding whether a new or modified source (project) must independently trigger PSD for criteria pollutants EPA says no Counter-argument Application of BACT to GHG Sources Tailoring Rule and Interpretive Memo (see handouts) EPA Climate Change Work Group Phase I Phase II Upcoming EPA Guidance (BACT White Papers) State Issues

5. NSPS for GHGs – What Could It Look Like? Endangerment Finding – by source category State Plan or FIP Process Content of Standards Best “adequately demonstrated” system of emission reduction taking into account cost and non-air quality health, environmental and energy issues Specifically authorizes “equivalent” methods Cap and Trade? Performance-Based Averaging and Trading? Can EPA Integrate New and Existing Source Standards for GHG Sources? EPA has taken the position that it must have set new source standards if it is to set existing source standards, but section 111 does not preclude EPA nor the states from setting a single performance standard for both new AND existing sources NSPS versus BACT Traditionally, NSPS sets a floor for BACT, but the Act does not preclude EPA nor the states from implementing NSPS in a manner that would satisfy the BACT requirement To satisfy CAA §169(3) (BACT), EPA should find that compliance with the national GHG existing source program constitutes the “maximum degree of reduction of each pollutant subject to regulation... taking into account energy, environmental, and economic impacts and other costs, determine[d]” to be achievable for the permitted units.

6. An Integrated National GHG Market?

7. OPEN MARKET CLOSED TECHNOLOGY MARKETS innovative technology credits (ITC) CAP AND TRADE P-B AVERAGING AND TRADING Electric power generators Refineries Glass Plants Cement Plants Landfills Other Transition to cap and trade ONE-WAY TRADING + OFFSETS TONS Internal Trading and Banking OnlyUnrestricted Trading, Banking; No Safety Valve IF Program Linked at Outset; Otherwise Transitional Safety Valve renewable electricity standard Advanced battery, advanced combustion, other vehicle and engine advances Solar, wind, biomass renewable fuel standard motor vehicles low-carbon biomass fuels (cellulosic ethanol, biodiesel), carbon capture and sequestration