US Supreme Court opens the “BACT” door for EPA on CO2, but it could swing two ways

The US Supreme Court last week rejected the methodology the Environmental Protection Agency used to implement its first-ever regulations on carbon dioxide emissions, but did lay out a path the agency can follow to achieve the same end by using the Clean Air Act’s the “Best Available Control Technology,” or BACT, provisions.

And although the ruling could be viewed as a win for EPA, it may end up being a victory that does not advance the agency toward its ultimate goal.

The EPA has promulgated its proposed greenhouse gas emission regulations for stationary sources in two parts — the first for new sources and the second, issued June 2, for existing sources.

When it issued its New Source Performance Standards (NSPS) in June 2013, the agency crafted a “tailoring” rule designed to limit the number of the sources that would need to comply. Most major sources of emissions, such as power plants and refineries, release far more CO2 than they do other pollutants. The EPA recognized that limiting those CO2 emissions to the same extent as it does other pollutants would be an economic and administrative nightmare, so the tailoring rule raised the bar for CO2 emissions to 100,000 tons/year, far above the 250-ton/year limit for conventional pollutants under the Clean Air Act’s prevention of significant deterioration provisions, or the 100 tons/year threshold under the CAA’s Title V.

And that’s where the Supreme Court stepped in, saying that the tailoring rule would give EPA newfound authority to regulate CO2 from millions of small sources such as shopping centers and apartment buildings.

“We are not willing to stand on the dock and wave goodbye as EPA embarks on this multi-year voyage of discovery,” Justice Antonin Scalia wrote in the 5-4 decision.

But the court did uphold EPA’s authority to regulate GHG emissions. ruling that sources already seeking a Prevention of Significant Deterioriation (PSD) permit for conventional pollutants could also be subject to restrictions limiting GHG by using BACT.

The decision is widely seen as a net win for the EPA because it left the NSPS program largely intact and builds on the agency’s other recent court victories.

Last year, the Supreme Court upheld EPA’s “endangerment finding” that brought greenhouse gases under its jurisdiction. And in April the high court upheld EPA’s redesigned rules on interstate air pollution.

But the recent decision was not an unalloyed victory for the agency.

When it drafted its proposed GHG rules for existing sources, EPA used Section 111(d) of the Clean Air Act, which calls for states to set emissions standards under EPA guidance by using the best system of emissions reductions, or BSER.

One advantage to that approach, at least for EPA, is that BSER is less specific than BACT, and EPA’s reading of “system” appears to be broad enough to include an array of methodologies that go beyond the application of technology. For example EPA’s draft 111(d) guidelines include energy efficiency mandates and dispatch regimes for power plants, as well as cap and trade programs.

“In terms of economic activity, the scope is remarkable,” Jeffrey Holmstead, a partner with Bracewell & Giuliani and a former assistant administrator at EPA during President George W. Bush’s first administration, said of EPA’s 111(d) proposal. “It goes beyond anything the EPA has tried to do before.”

Holmstead said he believes EPA is going to run into trouble with that approach. “The language in the decision shows that EPA could have an uphill battle with 111(d),” he said.

He cites a section of the court’s decision that says the agency’s tailoring rule is “unreasonable because it would bring about an enormous and transformative expansion in EPA’s regulatory authority without clear congressional authorization.”

That would certainly apply to the EPA’s use of BSER in 111(d), Holmstead said, and that would not be lost on the five justices who joined the majority opinion.

Scalia, writing for the majority, said: “When an agency claims to discover in a long-extant statute an unheralded power to regulate ‘a significant portion of the American economy,’ … we typically greet its announcement with a measure of skepticism.”

If 111(d), as the proposed rules are commonly called, is challenged, which is a far safer bet than the US winning the World Cup, EPA could have a much tougher time defending its BSER approach, and this time there might not be a back door to an alternate solution.

Platts