Time for Some Fresh Air

The top air quality management issues in 2007

Change is in the air. Congress changed in November from Republican to Democratic leadership. A pending U.S. Supreme Court case and new U.S. Environmental Protection Agency (EPA) rules probably will change the New Source Review requirements. These and other changes may affect how you operate your facility in 2007.

A New Look at NSR
Few things in the environmental arena are as confusing as the New Source Review (NSR) permitting program, which was established 1977 under the Clean Air Act Amendments implemented by Congress. NSR is a preconstruction permitting program that serves two important purposes. First, it ensures that air quality is not significantly degraded from the addition of new and modified factories, industrial boilers, and power plants. Second, the NSR program assures citizens that any large or modified industrial source in their neighborhood will be as clean as possible and that installation of pollution control advances occur concurrently with industrial expansion.

The nature of the permitting requirements despends on whether the source is to be located in an area that attains, or has failed to attain, the national ambient air quality standard (NAAQS) for the pollutant in question. Sources located in attainment areas are subject to the prevention of significant deterioration program; sources in located in nonattainment areas are subject to the non-attainment program.

Court cases in 2006 made the NSR landscape even more muddled. Federal appellate judges are not sure whether NSR is triggered by an increase in potential hourly emissions (United States v. Duke Energy Corp., 4th Cir), or annual actual emissions (United States v. Cinergy Corp., 7th Cir.). EPA believes NSR should apply only to modifications costing more than 20 percent of plant replacement costs; the Court of Appeals found that this logic would be rational, “only in a Humpty Dumpty world.”(New York v. EPA, D.C. Cir.). EPA will continue to enforce the old, more stringent NSR rules for historic violations in cases that EPA has filed in the past. However, if EPA discovers the same historic violations at other facilities, it will not initiate enforcement. Anyone trying to understand NSR may conclude that Alice is not the only one living in Wonderland.

Supreme Court Case
There is the possibility of future clarity on NSR. The U.S. Supreme Court has agreed to hear the Duke Energy case in 2007, and the questions the Justices posed during oral argument indicate the court will provide a decision that addresses the fundamental aspects of NSR. Industry and public interest groups have had long-standing major disagreements on what the Clean Air Act NSR language actually means. Congress has not had the political consensus to resolve these disputes by providing clarifying language. The upcoming Supreme Court decision in the Duke Energy case likely will be the only clarifying statement on NSR in the near future. Once the Supreme Court speaks, we can expect EPA to provide any necessary conforming regulatory language shortly thereafter.

EPA Regulations
EPA has not stopped making revisions to the NSR program. Near the end of 2006, EPA proposed regulatory changes to address “aggregation, debottlenecking, and netting” in NSR.

  • Aggregation determines when an applicant should consider multiple modifications at a facility together for NSR purposes. Under EPA’s proposal, applicants should consider two or more projects together only if one of them is dependent upon another.
  • Debottlenecking occurs when modifications at one portion of a facility increase production or throughput in other unchanged portions of the facility. EPA is proposing that applicants exclude from the NSR applicability test any emissions from the unchanged portions of the facility that have already been taken into account in other permits.
  • Project Netting evaluates if NSR applies when there are other emissions increases and decreases at the facility. Previously, the netting calculation for a project resulted in a complex source-wide analysis of emissions increases and decreases over a five-year period, even if the net effect of the project itself would not have increased emissions significantly. EPA is proposing to eliminate the need for a source-wide netting analysis if the net effect of the project itself does not result in a significant increase. Assuming EPA’s final rule is similar to the proposal, we can expect another round of legal challenges

State Actions
Fortunately, EPA regulations and court decisions on NSR do not have an immediate effect in most jurisdictions. Most state and local agencies have fully approved regulatory programs for NSR. Those programs remain unchanged until the state adopts new regulations voluntarily or as requested by EPA. The federal actions do show the path that EPA will expect the states to follow in the future. EPA appears to be pressuring states to adopt revised NSR rules consistent with EPA’s NSR approach. It is important to note that state actions to approve or reject EPA’s NSR changes have caused significant political debates.

Particulate Matter
One of the most active areas for new air regulations in 2007 will be state efforts to develop controls to meet the standard for fine particulate or PM2.5 (particulate matter that is 2.5 micrometers or smaller in size). While the National Ambient Air Quality Standard (NAAQS) for PM2.5 has been on the books for nearly a decade, State Implementation Plans (SIPs) to show how to attain and maintain that standard are due in February 2008. During 2007, states must identify specific control options that will allow them to meet the NAAQS for PM2.5 by February 2010.
The good news is that the NOx SIP Call (a program designed to help states mitigate the significant transport of nitrogen oxide, which is one of the precursors of ozone, through a cap and trade program), the Acid Rain Program, and the Clean Air Interstate Rule (CAIR) will significantly reduce PM2.5 precursors helping states achieve that goal. The bad news is that those programs affect the predominant stationary sources of PM2.5 precursors; so now all the low-lying fruit has been picked. In geographic areas where those programs are not sufficient to achieve and maintain the NAAQS, states will be hard pressed to find significant additional reductions at moderate costs. Controls in such areas may be very stringent and apply to a wide variety of source categories.

As if the existing standards did not present enough problems, EPA recently revised the PM2.5 standards. In a strongly worded letter, the EPA Clean Air Scientific Advisory Committee objected to the decision. The committee members felt that the newly adopted PM2.5 standards were not sufficiently stringent. Environmentalists are rattling their sabers, and further litigation is certain. The new Democratic majority in Congress also may weigh in on whether those standards are adequate.

New Initiatives
The environmental debate is not limited to traditionally controlled pollutants. EPA has completed a major initiative to control mercury emissions from coal fired power plants -- more controls may be coming. In addition, the pressure to control of greenhouse gasses continues to grow.

In March 2005, EPA adopted a national regulation, the Clean Air Mercury Rule (CAMR), to control emissions from coal-fired power plants. CAMR is a national cap-and-trade program in which EPA assigns each state an emissions “budget” for mercury emissions from coal-fired power plants, and each state must submit a State Plan revision detailing how it will meet its budget for reducing those emissions. States allocate portions of that budget to each coal-fired power plant emissions unit, and the units must reduce their respective emissions or purchase credits to satisfy that allocation. For example, New York’s CAMR budget equates to 786 pounds per year of allowable mercury emissions from coal-fired plants in 2010 through 2017 and 310 pounds per year in 2018 and beyond. In contrast, Oregon’s statewide budget is 152 pounds and 60 pounds, respectively.

Not all states agree with the EPA cap-and-trade CAMR program or the level of reductions EPA established. Many states, predominantly those with Democratic governors, have set far more stringent mercury controls on coal-fired power plants. Several also preclude any trading program to achieve the limits, therefore most or all units in those states must install pollution controls. Legal challenges are likely to determine whether these more stringent, state-generated non-cap-and-trade rules impair the efficacy of the national cap-and-trade program.

Coal-fired power plants are not the only sources subject to upcoming mercury limitations. There are existing non-utility sources with larger mercury emissions than entire state CAMR budgets. The Michigan Department of Environmental Quality recently agreed to a consent order that would limit a large cement manufacturer to emissions of 567 pounds of mercury per year until January 2010, with reductions to 390 pounds per year thereafter (roughly five times the Oregon CAMR budget and nearly equal to the New York budget).

Based on the current controversy regarding mercury emissions, it is safe to say that environmental officials are actively investigating what other categories of mercury sources they can find and how they might be controlled. EPA’s Mercury Study Report to Congress identified more than 40 categories of sources for anthropogenic mercury emissions. Companies in those source categories should be attentive to possible changes. Recent state actions to adopt significantly more stringent controls than EPA’s CAMR rule suggest that state mercury controls on other source categories also could be quite strict.

Greenhouse Gases
The pressure to adopt controls on greenhouse gases is increasing. In late 2005, the United Nations World Meteorological Organization determined that greenhouse gas concentrations increased to record levels in 2005. California passed the Global Warming Solutions Act of 2006, a framework for reducing greenhouse gases from stationary sources to 1990 levels by the year 2020 and to 80 percent below 1990 levels by 2050. Now there are twelve states with greenhouse gas emissions targets. These state actions may be followed by federal action. At press time, Sen. Barbara Boxer, D – Calif., is in line to chair the U.S. Senate’s Environment and Public Works Committee and she supports mandatory controls on emissions of greenhouse gases.

Enforcement and Permit Appeals
Environmentalists have criticized EPA’s enforcement program on two fronts. First, they complain that EPA is no longer enforcing past NSR regulations against newly discovered historic violations. Second, the environmentalists complain that EPA is filing fewer new enforcement cases and that current enforcement accomplishments are largely the result of cases filed under the Clinton administration. EPA representatives suggest that the agency’s limited resources are better used and achieve greater reductions in unlawful emissions by focusing on sector-based initiatives rather than the number of new enforcement cases filed. Under this approach, the agency focuses on one or more industrial sectors where they find significant noncompliance. EPA then trains enforcement teams on that sector and sets goals for emissions reductions within that sector by specific dates.

EPA’s Clean Air Act enforcement focus for 2006 through 2007 is shifting away from coal-fired power plants. The agency will step up its NSR enforcement activities against other sectors, including cement plants, glass manufacturers, and acid producers. Additionally, EPA will investigate those sectors that have shown significant growth in production or emissions without developing a significant number of NSR permits.

EPA will emphasize hazardous air pollutants (HAPs) enforcement, hoping to reduce 750,000 pounds of HAPs between 2005 and 2007. By the end of fiscal year 2007, each of the EPA regions will evaluate at least three maximum achievable control technology (MACT) source categories. In total, EPA regions will evaluate at least 20 different MACT sources categories. The regions and headquarters will each undertake one national MACT initiative. As 2007 develops, we will see which industrial sectors receive the most enforcement attention.

Perhaps because of the smaller number of new cases filed by EPA, state environmental agencies are stepping up their air enforcement activity. Historically, state enforcement initiatives have involved less complicated cases and secured smaller civil penalties compared to EPA enforcement actions. That approach continues with states filing a large number of cases against facilities that failed to apply for renewal of their Title V operating permits. In these enforcement actions, penalties typically run around $10,000. However, the picture may be changing. Several states have secured air enforcement penalties approaching one million dollars per case in some reasonably complicated matters.

One emerging trend in state enforcement is the use of innovative penalty theories, such as wrongful profits. The wrongful profits theory seeks to recover all profits received from the sale of products resulting from processes that were not environmentally compliant. For example, a recent Vermont enforcement action involved a gas station owner who failed to install $13,070 in Stage II vapor recovery equipment for 10 months. During that time, he earned $161,264 in total profits. The Vermont Agency for Natural Resources fined him $161,264 for “wrongful profits.” The Vermont Supreme Court reversed that penalty, stating that a wrongful profits analysis significantly over-inflates the actual economic benefit to the violator. However, other states continue to promote this theory of wrongful profits, particularly in settlement negotiations with smaller companies that presumably hope to avoid the expense of litigation.

In the past few years, there has been a significant increase in the number of citizen enforcement actions and citizen permit appeals, particularly against coal-fired power plants. One common theme is that the permittee is choosing a technology that is not the most efficient one available. This raises the fundamental question of to what degree public interest groups or state agencies can force permit applicants to modify the basic design of their facilities. For example, can a group of concerned citizens force a coal-fired power plant applicant to build a gas-burning power plant?

One recent example illustrates the impact that citizens’ actions can have in the permitting process. The Illinois Environmental Protection Agency granted Prairie State Generating Co. an NSR permit to construct a base load power plant using coal-fired boilers. Several citizens’ groups argued that the permit applicant, as part of the Best Available Control technology (BACT) process requirement, must consider a substantially different power generating process – the Integrated Gasification Combined Cycle (IGCC). (This process involves the conversion of coal to a synthetic gas, which is later burned in a combustion turbine.) The Illinois agency then required the applicant to study IGCC as part of the BACT process but ultimately granted the permit without IGCC. Afterward, the citizens’ groups appealed to the EPA Environmental Appeals Board (EAB).

The EAB noted that in order for Prairie State Generating Co. to install IGCC process, it would have to redesign completely the power block for the facility. The board summarized a series of prior EAB decisions, which held that an applicant’s basic design is a matter solely within the expertise and discretion of the permit applicant, and a BACT analysis cannot be used to modify that design. However, the EAB stated that the restriction on modifying the applicant’s design during a BACT analysis only applied so long as those design decisions were “independent of air quality permitting.” The EAB affirmed the Illinois agency’s decision because they did require the permit applicant to evaluate IGCC, and the applicant only rejected the process because it was more expensive and provided no lower emissions than the control option that was selected.

Presumably, if IGCC provided lower emissions in a cost-effective manner, the Illinois agency could have required Prairie State Generating Co, to redesign the coal-fired boiler plant into a gas-fired turbine plant as part of the BACT process. This EAB decision had a generic application to the NSR process and was not limited to coal-fired power plants. It may prompt other state agencies or citizens’ groups to demand that permit applicants in all industrial categories fundamentally change the processes described in the permit application when other lower emitting processes exist. We may not yet be at the stage in which citizens’ groups can redesign the plant that you want to build, but we may not be far off.

The political, regulatory, and legal decisions from 2006 will require facility managers and environmental specialists to closely monitor 2007 agency actions to ensure their future operations and potential plant changes do not have problems.

This article originally appeared in the 01/01/2007 issue of Environmental Protection.

About the Author

Bill S. Forcade, who has written regulatory forecast articles for Environmental Protection since 2002, is a partner in Jenner & Block’s Chicago office. He is a member of the firm’s Environmental, Energy and Natural Resources Law, Climate and Clean Technology Law, Trade Secrets and Unfair Competition, Defense & Aerospace, and Association practices. His primary focus is in the area of air pollution and enforcement. In the last five years alone, he has represented clients in more than 20 rulemaking proceedings at both the federal and state level, prepared or reviewed more than 50 Title V operating permit applications, Title IV Acid Rain permit applications, and Title I New Source Review Construction Permit applications, provided ongoing regulatory and permit compliance counseling to both large and small companies and represented clients in more than 30 noncompliance negotiations and formal enforcement proceedings brought pursuant to the Clean Air Act, in both federal and state forums, at administrative and judicial levels. In 2008, Forcade was selected by the Leading Lawyers Network as one of the Top Ten Environmental Lawyers in Illinois and is named in the 2009 edition of Best Lawyers in America for environmental law. He received his law degree from The John Marshall Law School in 1976 and his bachelor's degree in biology and chemistry from the University of Illinois at Chicago in 1971.

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