On Friday, less than a month before EPA regulation of greenhouse gas (GHG) emissions under the Prevention of Significant Deterioration (PSD) program is set to begin, EPA announced the finalization of its Finding of Substantial Inadequacy and SIP Call Rule for GHG emissions.  This rule finds that the laws of 13 states do not authorize them to regulate GHG emissions as will now be required as of January 2, 2011.  The SIP Call requires those states to change their laws to authorize GHG regulation and to submit those changed laws as a part of a revised State Implementation Plan (SIP) to EPA for review and approval.  The affected states are Arkansas, Arizona, parts of California, Connecticut, Florida, Idaho, Kansas, Kentucky, Oregon, Nebraska, Nevada (Clark County), Texas, and Wyoming. 

EPA’s SIP Call Rule gives these 13 states up to one year to change their laws.  However, EPA says that if any of these 13 states has not changed its laws to authorize GHG regulation by January 2, 2011, there will be a construction ban for new and modified sources that emit GHGs above the Tailoring Rule thresholds.  This is because, under the Tailoring Rule, new and modified sources will need a PSD permit to emit GHGs above those thresholds, but the state will not be authorized under its own laws to issue permits covering GHG emissions. 

To get around the construction moratorium problem, EPA’s SIP Call Rule proposal offered states the option of setting an earlier date for changing their laws, with a minimum time of only three weeks.  The three-week submittal deadline is a fiction for states that do not believe they can change their laws within the maximum one-year period.  At the end of the three-week period, EPA will find that the states have not met the requirements of the SIP Call and will impose a Federal Implementation Plan (FIP) under which EPA will step in and administer the GHG portion of the state’s PSD permitting program as of January 2, 2011.  According to EPA, this will prevent a permitting gap from emerging in which neither the state nor EPA is authorized to issue permits for GHG-emitting sources. 

In the proposed SIP Call rule, EPA asked the states that would be subject to the SIP Call to indicate what SIP submittal deadline, from three weeks to one year, they wished to elect.  According to the final SIP Call Rule, seven of the thirteen states that the rule addresses—Arizona, Arkansas, Florida, Idaho, Kansas, Oregon, and Wyoming—opted for the earliest SIP Call deadline of December 22, 2010.  EPA expects to impose a FIP on these states by the end of the year.  For these states, EPA offers the possibility that, although EPA will have control of the GHG portion of these state’s PSD program, states could continue to administer this portion of their PSD program as EPA’s delegate and acting under EPA’s direct supervision.

According to EPA, Kentucky, Clark County, Nevada, Connecticut, parts of California, and Nebraska elected SIP submittal dates sometime in the first part of 2011.  A permitting gap will exist in those states after January 2, 2011 until they change their laws and those law changes are approved by EPA.  According to EPA, the effect of the permitting gap will be mitigated by the small number of PSD permit applications that are expected in those states.  EPA also said it is prepared to step in and impose a FIP if any of these jurisdictions miss their SIP submittal deadlines or indicate to EPA at some point that they cannot meet the deadline.

Texas has resisted any cooperation with EPA’s efforts to apply GHG requirements in the PSD program and thus did not select a SIP submittal date.  EPA assigned it a date of December 1, 2011 and said without elaboration that EPA “is planning additional actions” to ensure that GHG sources in Texas can be issued permits as of January 2, 2011.

The specific terms of the FIP that will apply in the states that elected the December 22, 2010 deadline or which elected a later deadline but may then miss it are not known at this time.  EPA proposed a FIP rule but has not at this point finalized that rule nor indicated when it will do so.  Presumably, that will happen by the end of this year.  In addition, although EPA has offered states that become subject to a FIP the opportunity to continue operating their PSD programs but as EPA’s delegate, the terms of the delegation agreement have not been worked out.

Throughout the preamble to the rule, EPA says that the states that accepted SIP submittal deadlines (all of the 13, excluding Texas) did so voluntarily.  The preamble does, however, note that some states, mentioning specifically Arkansas and Kentucky, took the position that they had only done so because of a desire to avoid the construction moratorium that EPA said would result if they did not acquiesce to EPA’s proposal.  The preamble also responds to comments on the SIP Call proposal on a number of topics, including the position of many industry commenters that EPA is wrong legally in concluding that it is required to trigger GHG regulation under the CAA.

The SIP Call rule does not address the states whose laws authorize regulation of GHGs as “air pollutants” but which set PSD permitting thresholds at or below the Clean Air Act thresholds of 100 or 250 tons per year (depending on the type of source) and therefore significantly below the Tailoring Rule thresholds.  The Tailoring Rule dramatically increased the statutory thresholds to avoid what EPA called the “absurd result” of a multitude of small sources becoming subject to GHG regulation.  The Tailoring Rule, however, does not automatically change the state thresholds, which will remain in effect under state law unless the states change them.  EPA has not required states to raise the low state thresholds to the Tailoring Rule levels, although it has strongly urged them to do so and has said that, if states don’t do so, they must demonstrate that they have the resources in place to handle the significantly higher permitting burden.  Most states are now in the process of trying to change their thresholds by January 2, 2011, with the results of these efforts currently uncertain and likely to vary from state to state. 

Finally, and curiously, although the rule was released on December 3, 2010, EPA’s website and the document itself indicate that it was signed by Administrator Jackson on December 1.  In the proposed SIP Call, EPA had stated that the SIP Call would be finalized by December 1.  This was in keeping with EPA’s desire to preserve the fiction that it was giving states a minimum of three weeks to respond to the SIP Call, which would have been December 22, giving EPA six working days to publish the FIP before the end of the year.  Although the rule was not published until December 3, the rule still indicates that December 22 is the deadline and says that this provides states with three weeks notice.  In any event, the rule also states that it is not final and effective until published in the Federal Register, which will likely take a week or two.