2. Some dilemmas of regulating nonattainment areas  Can we force industry to clean up the air without impairing economic efficiency? (over- and underinclusiveness)  What’s the appropriate balance between cutting old plants some slack while making new plants cleaner? (Will we create an incentive to keep old plants in service too long—a perverse incentive?)  Is there a role for “market mechanisms” in a statute based primarily on coercive (command-and-control) regulation?

9. General SIP nonattainment mandates (sec. 172(c))  Emissions inventory of pollutant sources  Permits for new/modified major sources  “Reasonably available control measures” (RACM); and “reasonably available control technologies” (RACT) for existing sources  Enforceable controls and timetables— ”reasonable further progress”

10. American Trucking (Sup. Ct.): classifying nonattainment areas  Could EPA use general (Subpart 1) CAA powers for O3 nonattainment, rather than pollutant-specific powers (Subpart 2)?  Subpart 2 did not fit well with revised O3 standard (1-hr. vs. new 8-hr. averaging)  Nevertheless, EPA has to follow Subpart 2’s “carefully designed restrictions on EPA discretion.”

11. Ozone and the issue of regionalism

12. Good and bad ozone  “Good up high, bad nearby”  10-30 miles above earth’s surface, ozone shields against ultraviolet light (a cause of skin cancer)  Ozone shield depleted by cholorfluorocarbons  Ground-level ozone can cause Coughing, painful breathing Asthma attacks Susceptibility to respiratory illness (e.g., pneumonia) Lung damage from repeated exposure

13. Ozone’s welfare effects

14. Ozone and smog  Volatile organic compounds (VOCs) and oxides of nitrogen (NOx) react with sunlight to produce ozone  Ozone is the primary component of smog

15. Inversion layers can trap smog near the ground

16. Ozone pollution is less of a problem in cool months

17. A common summer pattern

18. EPA amends the ozone NAAQS  March 2008—8-hr. ozone average goes from.084 ppm to.075 ppm  More nonattainment?

19. Problems in WNY … 20082 008

20. … and across the state

21. Can SIPs address ozone fairly and effectively?

22. Chevron and the Bubble Rule  1977 Act requires permit for nonattainment new/modified major source  Courts—bubbling mandatory where preserving air quality (PSD) but prohibited where improving air quality (nonattainment)  1980—EPA defines “source” to mean the whole plant  Bubbles OK in nonattainment areas

23. Rationale for upholding EPA’s rule  Statute gives some flexibility (“source” includes “facility”)  Legislative history not helpful  Congress wanted to encourage both better air and capital improvements  EPA is in a better position than the courts to make that tradeoff  Agency rule was reasonable

24. Congress later endorses but tweaks the bubble  1990 amendments adopt but tighten bubble requirements  In serious ozone nonattainment areas, sources have to exceed one-for-one offsets (1.3 : 1)  Bubbles, offsets (and more generally market tools) can be used to ratchet down pollution

25. In the background—acid rain and greenhouse gases

26. New York I (‘05): Q: “How’s your emissions?” A:“Compared to what?”  Statute: a “modified” source has to meet new source standards (NSPS) – “above NAAQS”  1980 regs– major mod = any physical or operational changes causing significant net emissions increase  What’s an “increase”? Industry—max hourly emissions go up EPA—past 2 yr. annual emissions vs. future potential (actual-to-potential)

27. Puerto Rican Cement precedent Modified kiln would pollute less at the same production, but could produce more Had to undergo New Source Review

28. WEPCo precedent  Utility argues that increases should be measured by “actual to projected actual” emissions (why might this make sense for utilities but not factories?)  EPA agrees, court affirms  2-year average replaced by “two consecutive years out of 10” (ten-year lookback)  2002—EPA applies actual/projected actual to all sources

29. Is the 10-year lookback arbitrary and capricious? No.  Two years preceding modification may be anomalous  Promotes economic growth, ability to respond to market changes  Removes disincentive to make modifications that may reduce emissions  Reduces disputes over representativeness of baseline years (business cycles vary by industry)

30. … and EPA can make predictive judgments on incomplete information

31. Increases measured not by actual emissions, but by “clean unit status”  If you installed LAER or BACT w/in past 10 years, you’re a “clean unit” and modifications don’t have to go thru NSR  Violates statute, which speaks in terms of pollutants emitted  Congress distinguished among actual, potential and allowable emissions

32. Some underlying questions  Why would New York resist rules that gave it more flexibility to achieve compliance?  Judge Williams’ concurrence says cap-and-trade or pollution taxes would work better. Do you agree? Why, or why not?

33. New York 2 (‘06): Does “any” mean “any”?  Equip. Replacement Provision defines “routine maintenance, repair or replacement” as a physical change involving “functionally equivalent components” up to 20% of replacement value  No NSR even if emissions increase

34. DC Cir.: No way, EPA  Statute requires NSR for any change that increases emissions  Congress did not permit reliance on markets to this extent  But EPA has discretion to overlook trivial violations

35. Note case—what does “routine” maintenance mean?  What’s normal for this plant, or what’s normal for the whole industry?  Ohio Edison uses whole-industry standard  Significance of Ohio Valley utilities

36. CARE v. EPA and the problem of “phantom reductions”

37.  Want to build a refinery in an area that is nonattainment for photochemical oxidant  Proposed offset: shift from petroleum- based asphalt for road paving to water- based  The state was already shifting to water- based asphalt for cost reasons  But it’s OK as an offset because State AG certified that it was enforceable

38. Clean Air Act Implementation in a Nutshell

39. Looking ahead  Should greenhouse gas controls be added into the NAAQS/SIP system? What changes would need to be made?  What role would you recommend for market mechanisms—netting, offsets, marketable emissions rights, banking?  Should greenhouse gas limits be set so as to “protect the most sensitive, with an adequate margin of safety,” or some other risk-management framework? How should economics be factored in?