Supreme Court Rejects Premise For GHG Tailoring Rule, But Largely Maintains EPA’s Authority To Set GHG Emission Limits

Supreme Court Rejects Premise For GHG Tailoring Rule, But Largely Maintains EPA’s Authority To Set GHG Emission Limits

By Deborah E. Jennings, Catherine B. Campbell, and Andrew B. Schatz

In a split decision, the United States Supreme Court confirmed the Environmental Protection Agency’s authority to regulate greenhouse gas (GHG) emissions from new and modified stationary sources that are required to obtain pre-construction and operating permits for non-GHG air pollutants, [ subscribers may access Supreme Court briefs and the opinion for this case]. EPA may thus require these sources to meet GHG emissions limitations.

The Court also held in its June 23 decision that the EPA may not require a source to obtain a pre-construction or operating permit solely on the basis of its potential GHG emissions. See U.A.R.G. v. EPA, 573 U.S. ____ (2014).

The Court’s decision upholds EPA’s regulation of roughly 83 percent of stationary source GHG emissions under its permitting program.

Background: The Clean Air Act

Under the Clean Air Act, major criteria pollutant-emitting facilities are required to obtain a pre-construction permit (e.g., a Prevention of Significant Deterioration (PSD) permit) before constructing or undertaking a major modification of a source in certain areas. The PSD permit imposes emission limitations on the source that reflect the best available control technology (BACT).

The Act defines “major emitting facilities as any stationary source with the potential to emit 250 tons per year of “any air pollutant” (or 100 tons per year for certain types of sources). The Act also requires a major stationary source to obtain a Title V operating permit that includes all emissions limitations and standards that apply to the source, among other requirements.

EPA’s GHG regulations

After the Supreme Court held in Massachusetts v. EPA (2007), [enhanced version available to subscribers], that GHGs may constitute an “air pollutant” under the Act, EPA initiated its regulation of GHG emissions.

First, EPA determined that GHG emissions endanger public health and welfare by contributing to global climate change.

Second, EPA determined that once it promulgated GHG standards for mobile sources, GHG emissions would become an “air pollutant” and trigger the applicability of major stationary source permitting requirements (i.e., PSD and Title V permits).

Next, in 2010, EPA finalized its so-called Tailoring Rule that increased the permitting thresholds from 100 or 250 tons per year for GHGs to 75,000 tons per year for modified sources and 100,000 tons per year for new sources. In the rulemaking, EPA explained that these higher thresholds were necessary because the permitting programs were designed to regulate “a relatively small number of large industrial sources” and the lower statutory thresholds would require millions of previously unregulated sources to incur significant costs and would overwhelm the administrative resources at the federal and state levels.

What the Court said

Writing for a divided Court[1], Justice Antonin Scalia held that the decision in Massachusetts did not compel EPA, nor does the Act allow EPA, to determine that promulgating GHG emissions standards for mobile sources requires the application of stationary-source permitting requirements to GHG sources.

Justice Scalia reasoned that the term “air pollutant” is used differently, depending on its context in the Act. EPA has often given the term “air pollutant” a narrower, context-appropriate meaning. He stated that applying the PSD and Title V permitting requirements to GHGs would “bring about an enormous and transformative expansion in EPA’s regulatory authority without clear congressional authorization” and is therefore an unreasonable interpretation of the Act. The Court also held that EPA lacked the authority to tailor the Act’s unambiguous numerical thresholds in its Tailoring Rule. The effect of these holdings is that EPA may not require PSD or Title V permits for a source solely based on its GHG emissions.

In contrast, the Court held that EPA may require BACT emission limits for GHGs emitted by sources that are otherwise subject to PSD review for non-GHG criteria pollutants (often called an “anyway” source).[2] Justice Scalia reasoned that the Act prescribes a more precise applicability test for BACT emission standards, namely “for each pollutant subject to regulation under this chapter (i.e., the entire Act).”

Because BACT limits apply to a regulated pollutant (as opposed to the more generic “any pollutant” discussed in Massachusetts), EPA acted within its authority when it applied BACT requirements to GHG emissions from “anyway” sources. The Court held that EPA may require an “anyway” source to comply with a GHG BACT emission limit if the source will emit more than a de minimis amount of greenhouse gases. Without opining on whether EPA’s 75,000 ton per year minimum threshold under the Tailoring Rule constituted an appropriate de minimis level, the Court directed EPA to establish a de minimis level on proper grounds. We expect that EPA will establish a de minimis threshold below which BACT limits will not be required for a source’s GHG emissions.

In practical terms, only a modest change

The Supreme Court’s decision is legally significant in limiting EPA’s broad, asserted authority to regulate GHGs from stationary sources under the PSD and Title V permitting programs (and potentially other sections of the Act). Practically speaking, however, EPA will still be able to regulate 83 percent of stationary source GHG emissions under the PSD/Title V permitting process, because almost all these sources also emit significant quantities of criteria air pollutants. In fact, only 3 percent of new or modified GHG-only stationary sources previously subject to the Tailoring Rule will now no longer be subject to regulation.

[1] Justice Stephen Breyer (joined by Justices Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan) dissented in part on the grounds that EPA had the authority to regulate GHGs under the Title V and PSD permitting process regardless of whether a source emitting non-GHGs.

[2] This holding was supported by seven justices; the exceptions were Justices Samuel Alito and Clarence Thomas.

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