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Deseret Decision Regarding CO2 Avoids the Key Question and Creates Significant Uncertainty

Environmental Law Update

November 19, 2008

In a noteworthy Clean Air Act decision in the wake of Massachusetts v. EPA, 549 U.S. 497 (2007), the Environmental Appeals Board (EAB) avoided the key question of whether carbon dioxide (CO2) is currently "subject to regulation" under the Clean Air Act (Act).  In the Matter of Deseret Power Electric Cooperative, EAB App. No. PSD 07-03. (November 13, 2008).  It appears that the decision is carefully designed to leave open for the next Administration the question of whether CO2 will be regulated under a key EPA permitting program.

On the one hand, EAB sided with the Environmental Protection Agency (EPA), agreeing that EPA is not required to treat CO2 as "subject to regulation" for purposes of the Prevention of Significant Deterioration (PSD) permitting program.  On the other hand, EAB found that EPA could exercise its discretion to treat CO2 as "subject to regulation," and thus require permit limits for CO2 based on the "best available control technology" (BACT).  Under the Bush Administration, EPA has made it clear that, for both legal and policy reasons, it does not want to treat CO2 as "subject to regulation" under the Act.  The EAB found, however, that the Deseret permitting record was not adequate to support this position.  It then remanded the permit back to the Agency with instructions that will make it very hard for EPA to respond to the remand until the new Administration takes office.  In doing so, the EAB has created significant uncertainty for anyone planning to construct virtually any type of commercial building or industrial facility.

Highlights from EAB's Decision

EPA Region 8 issued a PSD permit to Deseret Power Electric Cooperative (Deseret) for a proposed waste-coal-fired electric generating unit planned at the existing Bonanza Power Plant in Utah.  Deseret's permit was subsequently challenged by the Sierra Club, which claimed that, in light of the Supreme Court's decision in Massachusetts v. EPA, the permit was invalid because it did not include a CO2 emissions limit.

In making its decision, the EAB parsed through a variety of arguments regarding textual and historical interpretations of the Act.  Sierra Club's challenge relied on sections 164 and 169 of the Act, provisions that prohibit the issuance of a PSD permit unless it includes a BACT emissions limit for "each pollutant subject to regulation under this Act." With sections 164 and 169 in mind, Sierra Club pieced together its argument using (1) the Supreme Court's ruling in Massachusetts v. EPA that CO2 is a "pollutant" as defined under the Clean Air Act; and (2) an argument that the CO2 "monitoring and reporting" requirements under section 821 of the Act constitute "regulation."  Thus, Sierra Club argued that CO2 should be considered a "pollutant" that is subject to "regulation."

On the other hand, EPA argued that "monitoring and reporting" requirements are not considered "regulation" and that deference should be given to its historical interpretations of the relevant provisions of the Act.

In the end, the EAB found no Congressional intent in the Act that would require EPA to apply BACT to "pollutants" that are merely subject to "monitoring and reporting" requirements.  The EAB also noted that in reconsidering its conclusions regarding CO2 BACT requirements, the EPA should be allowed to exercise discretion in interpreting what constitutes a "pollutant subject to regulation" under the Act.  However, because the record did not support EPA's current reasoning for failing to include a BACT limit for CO2 in the permit, the EAB remanded Deseret's permit. 

In issuing the remand, the EAB noted that EPA has discretion to interpret the term "subject to regulation under the Act," an interpretation that will determine whether BACT is required to limit CO2 emissions.  The EAB noted in the closing paragraphs of its decision that it recognized the national implications this decision may have, and called for the EPA to consider whether "an action of nationwide scope" is required to address the issue.

Initial Observations from Bracewell's Environmental Strategies Group

  • The Deseret decision creates enormous uncertainty for virtually any significant building project in an area of the country in which EPA is the permitting authority.  Under the Clean Air Act, the permitting authority cannot choose to treat CO2 as subject to regulation for some types of sources and not others.  If CO2 is "subject to regulation" under the Clean Air Act, then any source that emits more than 250 tons per year of CO2 would need a PSD permit.  EPA analysis has indicated that virtually all schools, hospitals, apartment buildings and commercial buildings have CO2 emission above this threshold.
  • Projects with a PSD permit issued after the underlying permit decision in Deseret may fare differently on appeal to the EAB because the Deseret ruling focuses somewhat myopically on the underlying permit record established by EPA.  In more recent PSD permits, EPA has included in the permitting record a much more robust explanation of its rationale for construing the existing Clean Air Act authority as not subjecting CO2 to regulation.  Since the underlying permit decision in Deseret, EPA has also stated that, before treating CO2 as subject to regulation, the Agency would need to go through notice-and-comment rulemaking.
  • In general, states that have their own EPA-approved permitting programs could take the position that they can interpret the term "subject to regulation" under the Clean Air Act to include CO2.  Some of these states (e.g., Connecticut, Maine, New York, California, Rhode Island and Vermont) sided with Deseret's opponents and argued that CO2 is already subject to regulation under the Clean Air Act.  It will be interesting to see whether these states now begin to require PSD permits for all sources that emit more than 250 tons per year of CO2, including schools, hospitals and apartment buildings.