On October 5, 2011, the Obama Administration announced that it would “accelerate” permitting and construction of seven proposed electric transmission lines.  These projects will serve as pilot demonstrations of streamlined processes and increased cooperation among federal, state and tribal authorities. These streamlined projects are also intended to create jobs in Arizona, Colorado, Idaho, Minnesota, New Mexico, Nevada, Wyoming, Utah, New Jersey, Pennsylvania, Oregon and Wisconsin.

In December 2010, EPA requested an extension from a court-ordered deadline that originally required EPA to finalize the package of rules last year, but the court only allowed EPA until February 21, 2011 to issue the final rules. After its request for an extension was denied, EPA conceded that the final rules would look quite different from the rules it proposed last year, and that additional procedures would be initiated to allow for additional comment on those differences.

Changes to the Proposal

Like the initial 2010 proposed rules, the final rules require coal, oil, and biomass boilers to comply with specific emission standards for particulate matter, carbon monoxide, hydrogen chloride, mercury, and dioxins/furans, while sources covered under the incinerator rule are held to stringent emission limits for nine different pollutants. However, the final rules differ in several significant ways from the original proposal.

In a telephone conference to announce the final rules, Gina McCarthy, Assistant Administrator for the Office of Air and Radiation, began by focusing on the costs and benefits of the new emission standards – asserting that, although the new rules would cost only half as much as the original proposal as a result of the changes EPA has made, the final rule would achieve nearly the same health benefits. She also stated that the final rules would result in a net creation of 2,200 jobs. The primary changes to the original proposal noted by the Assistant Administrator included (1) establishing a new category of small boilers (< 10 mmBtu/hr heat input) that would only need annual tune-ups to comply, (2) imposing only work practice standards on limited use and emergency boilers (less than 10 percent capacity factor), and (3) combining large coal and biomass boilers into one “solid fuel” category subject to the same emission standards for three of the five pollutants covered by the rule. With regard to the last item, Ms. McCarthy indicated that EPA’s intent was to allow greater flexibility for biomass sources by allowing them to avoid the need to install scrubbers and focus more on the pollutants they emit in greater quantities, such as particulate matter, which can be addressed through fabric filters or baghouses. 

In addition to the differences noted by Ms. McCarthy, the new rule also includes a variety of other changes from the 2010 proposal. Some of the changes are welcome news to industry, such as less stringent mercury and dioxin/furan limits for most sources, the elimination of the need to install continuous emission monitors for carbon monoxide, and new startup and shutdown requirements that allow work practice standards to take the place of the numeric emission limits. Others changes, however, will not be good news for most facilities, such as more stringent particulate matter and hydrogen chloride emission limits for new biomass boilers, more stringent carbon monoxide limits for existing biomass stoker boilers, more prescriptive requirements for conducting an energy assessment to identify possible energy efficiency improvements, and a new procedure for claiming an affirmative defense for emission exceedances during a malfunction. The full impact of these changes on new and existing boilers remains to be seen.  In a new twist to the rules, EPA has also finalized never-before-seen “output based” alternative emission standards, which would allow sources to determine compliance by comparing the level of pollutants emitted to energy output, rather than to fuel input, which in effect incorporates an efficiency component into the emissions standard.

New “Solid Waste” Definition

Once Ms. McCarthy concluded her opening remarks on the Clean Air Act rules, Mathy Stanislaus, Assistant Administrator for the Office of  Solid Waste and Emergency Response, made a few remarks with regard to the redefinition of the term “solid waste” under RCRA. According to Mr. Stanislaus, the purpose of the redefinition rule is to more clearly divide those sources that would be treated as a “boiler” under Section 112 of the Clean Air Act and those that would be treated as an “incinerator” under Section 129 of the Act, since the Act defers to the RCRA definition of “solid waste” to make that distinction.  The new rule states that most “secondary materials” (i.e., those that are not the primary product of an industrial process) are solid waste when burned in combustion units, but the rule provides new exceptions from that determination. 

Specifically, the new definition is designed to allow for, and even encourage, the beneficial use of “secondary materials” as a product, fuel, or ingredient in another industrial process in certain situations. The rules exclude from the definition of “solid waste” (i) secondary materials that remain within the control of the generator, (ii) scrap tires managed by an appropriate program, (iii) resinated wood used as fuel, (iv) materials used as “ingredients,” (v) discarded secondary materials that are “processed” to produce fuels or ingredients, and (vi) materials that have received a case-specific “non-waste determination” from EPA. The new rule also excludes “traditional” fuels from the definition of “solid waste,” including fossil fuels, their derivatives, and clean cellulosic biomass. The intent of the new rule is to ensure that biomass boilers, and boilers that utilize “secondary materials,” need only comply with the boiler requirements described above, instead of the more stringent incinerator standards.

Notice of Reconsideration

As promised in a press release following the denial of its request for more time, EPA has already issued a “notice of reconsideration” for the rules. That notice contains a comprehensive list of the differences between the 2010 proposal and the final rule and requests comment from the public on those changes. On the telephone conference announcing the final rules, Ms. McCarthy indicated that the reconsideration will not necessarily result in additional substantive changes to the rules because EPA believes the final rules to be “realistic, achievable and reasonable” as finalized. Instead, Ms. McCarthy indicated that the reconsideration is intended largely to correct any possible “procedural defects” associated with the significant differences between the proposal and the final rule by allowing another opportunity for public comment. Even so, the notice of reconsideration states that EPA will request comment on “any provisions we propose to modify after more fully evaluating the data and comments already received.”  Ms. McCarthy also stated that EPA expected to receive several petitions for reconsideration on the merits of the rule, which it would fully consider as well.

Despite the additional procedural steps EPA plans to take, EPA still expects the deadline for compliance to be 2014 for boilers and 2016 for incinerators. The final rule package will be published in the federal register in the coming weeks, but EPA has not yet established a deadline for additional comments in response to the notice of reconsideration.

The required air permits, known as Prevention of Significant Deterioration (“PSD”) permits, are generally issued by state permitting agencies.  In issuing these permits, states act simultaneously under federal law—the Clean Air Act (“CAA”) and EPA’s regulations implementing the CAA—and state law. 

The two EPA regulations proposed on Thursday are designed to conform state laws and regulations to EPA’s new GHG requirements.  EPA has identified 13 states whose laws do not authorize them to regulate GHGs in conformity with EPA’s new GHG requirements.  EPA says that its 13-state list is based on a “tentative” review of state law and asks for comments on whether any of the laws of these 13 states do in fact authorize GHG regulation and also whether any of the laws of the other 37 states do not authorize such regulation.

EPA proposes to issue on December 1 of this year a “SIP Call” for any state that EPA finally determines does not authorize regulation of GHGs.  The SIP Call will require these states to make the necessary changes to their laws and to submit a State Implementation Plan (“SIP”) to EPA confirming that they have done so.  EPA proposes to give states up to one year to respond to the SIP Call or some lesser period of time that a state agrees to.  Some states may need the year (or even more) to respond to the SIP Call because they must undertake notice and comment rulemaking to change regulations or their legislators need to enact statutory changes.

For states that do not change their laws in response to the SIP Call, EPA proposes to impose a Federal Implementation Plan (“FIP”) under which EPA would essentially take over the state permit program.  EPA does not propose to take over the entire state program, only that part addressing GHGs.  Recognizing that there could be difficulty with processing a PSD permit application in which states retain control over non-GHG emissions and EPA controls GHG emissions, EPA invites comment on whether EPA should take over the entire state PSD program.  EPA states that it will retain control of the state PSD program, in whole or in part, only until the state conforms its laws to EPA’s requirements through a SIP submission.

EPA says the purpose of the rule is to ensure that every state has a permit program in place—whether administered by EPA, the state or both—that is capable of processing PSD permit applications with GHG conditions as of January 2, 2011 when GHG regulation commences.  The challenge of doing so, however, will be difficult, at least in some states.  Since EPA will not issue SIP Calls until December 1, 2010 and since those states that receive a SIP Call will have at least a year to respond, it appears inevitable that some states will not be able to process PSD permit applications with GHG conditions as required by EPA by January 2, 2011.  Moreover, a state response to a SIP Call is not automatically effective but must be approved by EPA through a process in which EPA must issue notice of the proposed approval and take comment.

Given these considerations, EPA recognizes that a possibility exists that, in some states and for some period of time, there could effectively be a permit moratorium and therefore a construction moratorium for sources that are subject to EPA GHG regulatory requirements.  This situation could occur for states that must change their laws but cannot do so by January 2, 2011 or those that do so in response to the SIP Call but EPA does not approve their response by January 2, 2011.  These states could only issue a PSD permit without GHG conditions, but those permits would violate federal law and could not be relied on by the permittee.  Without a valid permit, the developer could not commence construction.

EPA offers several options which it says are designed to minimize the possibility that this type of construction moratorium could come about.  It proposes to “parallel process” its approval of a state’s response to a SIP Call with the state making the needed changes in state laws.  Under this option, where a state issues notice and takes public comment on a proposed law revision as part of the process of responding to the SIP Call, EPA would simultaneously issue notice and take comment on whether the state’s proposed law revision, assuming it is finalized without change, satisfies federal requirements.  Other options proposed by EPA include states agreeing in advance to EPA taking temporary control of their PSD programs and states agreeing to temporarily act as EPA’s delegate in administering a federal PSD program, both until the states make the needed law changes.

EPA also faces the problem that some states that authorize regulation of GHG emissions may have different thresholds for regulation than EPA.  EPA’s Tailoring Rule was designed to address the problem that the CAA requires any source potentially emitting more than 100 or 250 tons per year of a regulated air pollutant (depending on the type of source) to obtain a PSD permit.  EPA concluded that these thresholds were too low for GHGs and could result in so many sources becoming subject to PSD permit requirements that the permitting system would become swamped with applications.  The Tailoring Rule increased those thresholds to much higher levels.

At least some states, however, require use of the lower thresholds, either because their laws incorporate the CAA thresholds by reference or expressly adopt them.  EPA is also requiring these states to change these regulatory thresholds.

EPA has already denied numerous requests from business associations that EPA delay the commencement of GHG regulation on January 2, 2011.  Despite the obvious difficulty, as reflected in EPA’s proposals, of ensuring that all fifty states are ready to go with GHG permitting as of that date, it seems very unlikely that EPA would change its determination to commence regulation with the beginning of the new year.

Comments on EPA’s proposals are due 30 days after they are published in the Federal Register, expected shortly.