EPA – A Focal Point Of Controversy

Thursday, March 22, 2012 - 14:02

The Editor interviews Annemargaret Connolly, Partner and Leader of Weil Gotshal’s Climate Change Practice Group, and Thomas Goslin, Associate and Editor of Weil’s Climate Change Update.

Editor: Please describe Weil’s environmental practice.

Connolly: Our environmental practice group consists of individuals with broad experience managing environmental issues in the context of corporate transactions and restructurings, and with significant experience advising on general compliance and handling complex environmental litigations. Our group is led by David Berz, and I oversee the transactional side.

Editor: One older Supreme Court case that is being re-litigated is Massachusetts v. EPA. At the end of February, the U.S. Court of Appeals for the DC Circuit heard oral arguments as to the legality of various rules enunciated by the EPA, such as the “timing” rule, the “tailoring” rule, the “endangerment” rule, and the “tailpipe” rule. Do you consider the petitioners who are challenging these rules to have a viable case?

Connolly: Massachusetts v. EPA decided in 2007 that EPA could regulate greenhouse gases under the Clean Air Act (CAA) if EPA found that such gases posed a threat to the public health and welfare. EPA made such a finding, which is known as the endangerment finding. EPA then took the next step and regulated greenhouse gas emissions from automobiles, which is known as the tailpipe rule. This in turn put the EPA into the position of looking at stationary sources, a huge universe, which prompted EPA to attempt to limit the number of facilities that would need to be regulated. The issue with the tailoring rule is that, under the CAA as drafted, EPA must regulate a source of pollutants if it emits more than 100 or 250 tons per year, depending on a few things. Under those thresholds, approximately six million new sources would be subject to CAA regulation.  The tailoring rule raised those thresholds to 75,000 tons and 100,000 tons, respectively, which EPA estimates will capture about 1,000 sources. At each step of the way there have been a variety of groups who have challenged what EPA has done and the basis for its action. So for example, in the case of the endangerment finding, the real challenge is that EPA did not have the scientific basis to make the determinations that it did. In the present challenges before the DC Circuit Court, we don’t think that the court is going to find the scientific argument to have merit. The agency gets a significant amount of deference as to how it assesses information it has gleaned, and we expect the court to defer to EPA’s expertise. Petitioners also challenged the tailpipe rule, arguing, among other things, that it was not necessary for the EPA to come up with this rule. We expect that the court will uphold the tailpipe rule assuming it holds up the endangerment finding, because a fair read of Section 202 of the CAA suggests that EPA had to regulate tailpipe emissions if it found those emissions created a danger. As to the tailoring rule, the jury is out in terms of what the court is actually going to decide because these are issues where EPA has used more of a policy or judgment decision as compared with relying on the statute itself. We recognize that while EPA developed the tailoring rule for a practical reason, there are arguments that the statute leaves EPA without the discretion to raise the thresholds set forth in the statute. It will be interesting to see how the court comes out on these issues.

Editor: Is the EPA’s tailpipe rule on shaky ground in concluding that a mix of six GHGs (carbon dioxide, methane, nitrous oxides, perfluorocarbons, hydrofluorocarbons and sulfur hexafluoride) constitutes endangerment to public health since two of the six gases are not emitted by autos?

Connolly: I think we would not be surprised if the court split on the finding on the tailpipe rule and found that EPA could regulate the first four chemicals, which are actually emitted from the tailpipe, but that it could not regulate the other two. On the other hand, we don’t think it’s going to have a significant effect on the implementation of the rules.

Editor: States are generally responsible for developing and administering the Clean Air Act standards within their borders. What argument did Texas present in refusing EPA’s permitting program?

Goslin: Texas is really challenging the EPA greenhouse gas regulations on a number of fronts. It’s challenging the endangerment finding, arguing that EPA did not assess the science adequately to reach its conclusion that it was a harmful pollutant. Also, Texas challenged the tailpipe rule, arguing that it was an arbitrary finding – it failed to comply with the Clean Air Act because it failed to consider the cost of the tailpipe rule on businesses. Because Texas is the largest emitter of greenhouse gases due largely to the concentrated presence of refiners in the state, these rules could have a pretty dramatic impact on Texas businesses. It is understandable why they would be challenging the rules.

Editor: Republicans in Congress have challenged the tailoring rule. What is the basis for the challenges?

Connolly: Generally speaking, the first thing to note is that Republicans in Congress have been trying to cut back EPA’s authority for some time. What they are pointing to is the express language of the CAA that provides low thresholds for when pollutants must be regulated. Yet when EPA issued the tailoring rule, it raised those thresholds by several orders of magnitude as they related to greenhouse gases.  The expressed language of the CAA states that it should regulate sources that emit either 100 tons per year or 250 tons per year of a given pollutant, so they’re saying that EPA acted in direct contravention to the CAA. Republicans aren’t trying to revert to the lower limits in the CAA, though. What they want is to make the regulation of greenhouse gases to be so politically untenable that Congress would have to act to strip EPA of its authority to regulate in this area.

Editor: You made the statement earlier that the EPA is given wide latitude.

Connolly: They’re given wide latitude to interpret scientific evidence. EPA is not given wide latitude to interpret laws. On this issue the problem is that EPA is tripping over the express language of the Clean Air Act. The statute provides for low thresholds, but the law really didn’t contemplate regulating a pollutant as widely emitted as carbon dioxide. EPA recognizes that the thresholds set forth in the CAA mean that it would have to regulate millions of new sources, and that this is too large a group to bring into a regulatory scheme right away, so they upped the number significantly to “tailor” the rule to deal with large sources such as refineries and utilities. Unfortunately, the statute does not give them the authority to make reasonable accommodations.

Editor: The first time these large stationary sources of GHGs were required to have permits under the Clean Air Act went into effect on July 1, 2011. Has this regulation been a heavy burden to owners of these large facilities?

Goslin: If you’re new to the PSD (Prevention of Significant Deterioration Program) and Title V permitting process, this is a heavy burden. So far there have been relatively few greenhouse gas permits issued. As of December 1, 2011, EPA had issued only 18 PSD permits for greenhouse gasses, though another 50 applications are in the pipeline. While obtaining a Title V or PSD permit can be an administrative nightmare, the real impact is going to be if and when EPA decides to put new limits on GHG emissions from stationary sources. The greenhouse gas New Source Performance Standards, which would do just that, are working their way through the regulatory process and could be issued later this year, which could require that stationary sources take steps to restrict GHG emissions. If that happens, we will really start to see a lot of complaints.

Editor: Isn’t the plan to roll out this provision so that a smaller number of GHGs emitted by various plants will also be taken into account in the future?

Goslin: What I think you’re talking about was a study that EPA did to see whether the limits on the tailoring rule should remain or whether they should be lowered, and EPA decided perhaps wisely that they should just leave it the way it is. That said, if the tailoring rule is upheld, there’s presumably nothing that would prevent EPA from lowering the thresholds in the future.

Editor: I suppose the economy has been a restraint on imposing more capital requirements on businesses.

Connolly: I would say that the economy is definitely influencing those who are challenging the regulations. Cost is a big factor in many of the arguments being set forth by those who oppose the greenhouse gas regulation.

Editor: What new environmental regulations have been placed on oil companies that plan to resume drilling in the Gulf?

Connolly: In the wake of the spill, the Obama administration had put a short-term moratorium on drilling, but now drilling applications are being accepted, reviewed and awaiting approval. We haven’t seen any new significant regulations that came about as a result of the spill. The regulations generally haven’t become more stringent – in fact the governors of several Gulf states are asking the Obama administration to ease the rules and to reduce the timing for permitting for offshore drilling. Obviously, the economy affects their thinking. About six months ago, the Bureau of Ocean Energy Management Regulation and Enforcement was split into two separate entities – the Bureau of Safety and Environmental Enforcement and the Bureau of Ocean Energy Management - to provide better checks and balances, which will doubtless delay approval of oil company offshore drilling blueprints for exploration that require well-by-well approval. Now proposals go to one agency that vets the plan and another to approve individual permits, likely leading to delays.

Editor: There is a great deal of uncertainty as to the application of environmental laws on both the state and federal level. How do you advise clients about compliance?

Connolly: Our advice is for them not to put their heads in the sand. Even with EPA being challenged at every turn, our general advice is to realize that at some point in time many of these regulations are going to come into effect one way or another. They should start to build a plan to address these changes so that when they come into play, they’ll be able to get themselves into compliance in short order. At the same time we encourage clients, if they have issues, not to be afraid to challenge the rulemaking, to work with their trade associations to raise issues and to influence the process in terms of what Congress or EPA is doing.

Editor: Is there anything else you would like to add?

Connolly: While we don’t expect Congress to do much of anything, it’s important to note that EPA will continue its work in terms of developing regulations in areas where it already has the authority to act, and I think we’re going to continue to see court challenges. We expect that EPA is going to have some kind of a standard for wells that use hydraulic fracking to obtain natural gases. I think we’re going to see new rules for emission standards for certain chemical plants. I think we’re going to see EPA take up new regulation of coal ash. EPA will be moving forward under its statutory mandates, which will have challengers arguing that EPA has exceeded its mandates or that EPA has not performed all of its mandates – always leaving EPA on the hot seat.

Please email the interviewees at annemargaret.connolly@weil.com or thomas.goslin@weil.com with questions about this interview.