On April 1, 2010, the Environmental Protection Agency (“EPA”) issued rules requiring motor vehicles to reduce greenhouse gas (“GHG”) emissions beginning with model year 2012 and continuing to model year 2016.

The rules were issued in tandem with regulations issued by the Department of Transportation’s (“DOT”) National Highway Traffic Safety Administration (“NHTSA”) under NHTSA’s Corporate Average Fuel Economy (“CAFE”) program, which requires an estimated 34.1 miles per gallon for the combined industry-wide fleet for model year 2016.  Because credits for air-conditioning improvements can be used to meet the EPA standards, but not the NHTSA standards, the EPA standards would effectively require a fuel economy standard of 35.5 miles per gallon if all reductions came from fuel economy improvements.  In a departure from EPA’s original proposal, its final motor vehicle GHG regulations require electric vehicles, fuel-cell vehicles, and plug-in hybrid electric vehicles to include the upstream GHG emissions produced by the electricity they use in determining compliance with EPA’s GHG standards.

The effect of the new regulations is not limited to just motor vehicles.  By regulating GHGs from motor vehicles, EPA has made GHGs “regulated air pollutants” for purposes of the Prevention of Significant Deterioration (“PSD”) permit program.  All new and modified major stationary sources of regulated air pollutants under the PSD program must obtain a preconstruction permit and undertake Best Available Control Technology (“BACT”) for the regulated air pollutants in question.  Hence, new and modified major sources of GHGs will now be required to obtain PSD permits and undertake BACT for their GHG emissions.

Since the EPA has been struggling to define both the GHG emissions threshold above which a source will be considered to be “major” for purposes of triggering PSD requirements and the date on which such requirements will commence for GHG-emitting sources, the EPA proposed a tailoring rule and proposed a reconsideration of the so-called Johnson Memorandum.  A final tailoring rule has not been released (see this edition’s article re: Tailoring Rule) but on March 31, 2010, the EPA granted reconsideration of the Johnson Memorandum.

The reconsideration states that GHG regulation under the PSD program will not commence for any source until the motor vehicle regulations “take effect,” which EPA deemed to be January 2, 2011.  The reconsideration did not specify which sources would be regulated at that time nor did it provide any information about what the phase-in plan would be.  Nevertheless, based on previous EPA statements, it is known that, as of January 2, 2011, any source subject to PSD permitting for its non-GHG pollutants will be required to undertake BACT for its GHG emissions as well.  Thus, any source that, under pre-GHG regulatory requirements, would be required to obtain a PSD permit and undertake BACT for its non-GHG emissions will now be required to undertake BACT for its GHG emissions.  Also, the language in the reconsideration suggests that sources that emit GHGs may be subject to regulatory requirements under the PSD program even before January 2, 2011.

Also, although the Johnson Memorandum only addressed the PSD program, the Johnson Memorandum reconsideration also addressed consideration of GHGs under the Title V operating permit program.  EPA stated that it would commence GHG requirements under the Title V permit program at the same time and in the same manner as under the PSD program so that GHGs will be subject to regulation as of January 2, 2011, and regulation will be eventually phased in under the tailoring rule.

The new rulemaking will certainly cause political tension (see February 19, 2010 edition of the WER).  Since states primarily administer PSD, the determination of what constitutes GHG BACT will be determined over time in case-by-case BACT determinations, further extending the uncertainty of these regulations. Also, until the tailoring rule is finalized, it is impossible to know which requirements apply to the many sources that have the potential to emit GHGs above the 250 tons per year statutory threshold.  In addition, the litigation and the actions of Congress will affect GHG regulations; thus, it is still unclear exactly how GHG emissions under the Clean Air Act will be regulated.
The EPA news release announcing the joint rulemaking with the DOT is available here, and the EPA’s reconsideration of the Johnson Memorandum is available at http://www.epa.gov/air/nsr/documents/psd_memo_recon_032910.pdf