Will Lisa Jackson turn the Clean Air Act into a gigantic de-stimulus package?

Earlier this week, in a letter to Sierra Club climate council David Bookbinder, EPA Administrator Lisa Jackson said the Agency would reconsider, via a notice-and-comment rulemaking, a Bush-EPA memorandum interpreting regulations that determine whether carbon dioxide (CO2) is currently subject to emission controls under the Clean Air Act’s Prevention of Significant Deterioration (PSD) pre-construction permitting program.

The memorandum, issued on December 18, 2008 by Jackson’s predecessor, Stephen Johnson, responds to EPA’s Environmental Appeals Board (EAB) decision in a dispute between EPA Region 8 and the Sierra Club. Region 8 granted Deseret Electric Power Cooperative a PSD permit to build a new coal electric generating unit near Bonanza, Utah. Like all other PSD permits issued in the program’s history, this one did not require the regulated entity to install best available control technology (BACT) to limit CO2 emissions. Sierra Club argued that EPA regulations adopted in 1993, which require power producers to monitor and report CO2 emissions, make CO2 a regulated pollutant for PSD purposes. Region 8 countered that it has no power to apply PSD or BACT to CO2, because EPA has consistently interpreted “subject to regulation” to mean subject to emission controls. The 1993 rules require data collection and reporting, not emissions control.

The EAB disagreed with Sierra Club in part, and with Region 8 in part. Contrary to Sierra Club, “subject to regulation” does not have an unambiguous meaning that compels EPA to impose a CO2 BACT standard in a PSD permit. But, contrary to Region 8, EPA is not bound by the Agency’s historic interpretation to apply PSD only to pollutants for which EPA currently administers emission controls. The EAB asked EPA to clarify the meaning of “subject to regulation” in the context of an action of “nationwide scope.” That’s what Johnson did in his December 18, 2008 memorandum.

The reason this is important, even if you don’t live in Bonanza, Utah, is that applying PSD to CO2 could have a chilling effect on new construction and economic development throughout the nation. As explained here, here, and here, the cutoff for regulating business entities as “major stationary sources” under the PSD program is a potential to emit 250 tons per year (TPY) of a CAA-regulated air pollutant. An estimated 1.2 million previously unregulated buildings and facilities actually emit 250 TPY of CO2. All would be vulnerable to new controls, paperwork, and penalties if courts deem CO2 “subject to regulation” under the CAA.

Before any firm could build or modify, for example, a large commercial office building, enclosed mall, or big box store, it would have to obtain a PSD permit, which means it would have to undertake a complex investigation of how to comply with BACT (see pp. B6-9 of EPA’s New Source Review Workshop Manual). Even apart from any technology investments required for BACT compliance, the PSD permitting process is costly and time-consuming. In 2007, each PSD permit on average cost $125,120 and 866 burden hours to obtain.

EPA’s Advanced Notice of Proposed Rulemaking (ANPR) estimates that even a ten-fold increase in PSD permitting from 200-300 permits per year to 2,000-3,000 permits “could overwhelm permitting authorities” and subject firms to “new costs, uncertainty, and delay in obtaining their permits to construct.” Yet if firms seek to modify just 1% of the 1.2 million entities that currently emit 250 TPY of CO2, EPA and its state counterparts would have to process 12,000 PSD permits per year. The costs, delays, and uncertainties produced by this administrative quagmire would bring economic development to a halt.

Johnson’s memorandum makes a strong case for the lawfulness of EPA’s historic interpretation that PSD and BACT are triggered only by emission control requirements established under other provisions, not by monitoring and reporting regulations. I find particularly impressive Johnson’s argument that Sierra Club’s reading of the Act would make nonsense of CAA §114, which authorizes the Administrator to require entities to gather and report emissions data to inform policy development. If EPA took the position that monitoring and reporting regulations automatically trigger PSD and BACT, then “the mere act of gathering the information would essentially dictate the result of the decision that the information is being gathered to inform (whether or not to require control of a pollutant).” Johnson remarks: “I prefer an interpretation that allows the Agency to first assess whether there is a justification for controlling emissions of a particular pollutant under relevant criteria in the Act.”

Attorney Peter Glaser put the point more forcefully in an amicus brief on behalf CEI and 13 other free-market groups. In the Deseret case, Sierra Club wanted the EAB to mandate CO2 regulation under PSD and BACT even though the EPA Administrator had not determined (and still has not determined) whether CO2 emissions endanger public health or welfare. This regulate first, do the analysis later (if ever) approach would stand the logic of the CAA on its head.

Johnson’s memorandum accomplished two things. First, it averted a “PSD nightmare”—at least on his watch. Second, as an Aiken Gump analysis astutely observed, the only way Johnson’s successor could overturn his “interpretative rule” would be through a notice and comment rulemaking. Jackson’s decision to reconsider Johnson’s memorandum via a rulemaking seems to confirm that assessment.

Sierra Club, Environmental Defense Fund, and Natural Resources Defense Council sued EPA last month in the U.S. Circuit Court of Appeals for the District of Columbia, asking the court to overturn Johnson’s memo. But, as Greenwire reported on February 17, when the deadline came, the groups declined to file a motion to “stay” the memo, or put it on hold. Greenwire explains: “If the agency were to stay the memo immediately, Bookbinder said, it could trigger an obligation under the Clean Air Act for broad-ranging regulations targeting even very small sources of carbon dioxide emissions.”

Bookbinder commented: “The Clean Air Act has language in there that is kind of all or nothing if CO2 gets regulated, and it could be unbelievably complicated and administratively nightmarish for both EPA and the states if they were to yank the Johnson memo and not have something in place that makes it clear that we’re going after only the very large sources.”

This is quite remarkable. At a September 23, 2008 hearing before the Senate Environment & Public Works Committee (see segments 1:47:10-1:48:22 and 2:03:83-2:05:20 of the Committee’s Archive Webcast), Bookbinder derided as a “bugaboo,” “red herring,” and “pure scare tactic” warnings by industry and free-market groups that establishing greenhouse gas (GHG) emission standards for new motor vehicles under CAA §202 would expose tens of thousands of previously unregulated stationary sources to PSD and BACT regulation. Yet now he acknowledges that, if applied to CO2, the PSD program could morph into an “unbelievably complicated and nightmarish” affair.

To be sure, Bookbinder thinks it’s possible for EPA, in a rulemaking, to make “clear we’re going after only very large sources.” But as a matter of law, EPA has no authority to pretend that a statutory cutoff set at 250 TPY really means 10,000 TPY, 25,000 TPY, or 100,000 TPY. Furthermore, although neither the Sierra Club nor any other major environmental group would sue EPA to insist on a strict letter-of-the-law application of PSD to CO2, the major environmental groups do not have a monopoly on CAA litigation. Applying PSD to small CO2 sources would empower legions of NIMBY (“Not in my backyard”) activists to block or delay construction of strip malls, big box stores, fast food restaurants, or other development they deem undesirable.

Lisa Jackson needs to understand that she cannot rescind Johnson’s interpretation and make CO2 a pollutant “subject to regulation” under PSD without running the very serious risk of turning the Clean Air Act into a gigantic de-stimulus package.