Scattered and dissonant: the Clean Air Act, greenhouse gases, and implications for the oil and gas industry.

• Author: Ritchie, Alex
• Position: II. Regulation of GHG Under the Prevention of Significant Deterioration Program B. Implications of PSD GHG Regulation for the Oil and Gas Industry 4. GHG as NAAQS Criteria Pollutant? through VI. Conclusion, with footnotes, p. 489-516

4. GHG as NAAQS Criteria Pollutant?

   Title I of the CAA distinguishes between so-called "criteria pollutants" that are listed by EPA under section 108 and "hazardous air pollutants" listed under section 112. (153) To date EPA has chosen not to list GHG as a criteria pollutant. (154) Such a listing, however, may be inevitable. GHG currently is in air pollutant no-man's land, categorized as neither a criteria pollutant nor a hazardous air pollutant.

   If the Supreme Court grants a petition for certiorari and sides with Judge Kavanaugh's dissent that Prevention of Significant Deterioration only applies to criteria pollutants, then EPA could decide to go forward and list GHG as a criteria pollutant. Alternatively, a court could force EPA to list GHG under section 108 in response to a challenge by states and environmental groups, similar to the manner in which EPA was forced by the Supreme Court to make a GHG endangerment finding determination under section 202(a)(1) in Massachusetts. (155) In fact, two environmental groups filed an administrative petition with EPA in late 2009, arguing that EPA is compelled to adopt national ambient air quality standards for GHGs as a criteria pollutant. (156)

   A criteria pollutant listing for GHGs would mean primary and secondary national ambient air quality standards for GHGs. (157) and the attendant revision of state implementation plans to include enforceable GHG emissions limits, control measures, schedules and timetables for compliance, and prohibitions against oil and gas industry emissions sources that contribute to nonattainment of GHG air quality standards. (158) A massive new regulatory scheme of target concentrations and related controls would be imposed to control GHGs without any consideration of the cost to industry. (159) The control regime would be followed by perpetual challenges by environmental groups to the primary and secondary standards for GHGs set by EPA (160) and increasingly tighter standards over time. It is not clear, however, how target concentrations might be set, as GHG concentrations are a global rather than state problem. (162) EPA itself has hinted that it would consider a national GHG concentration level. (163)

5. Regulation of Other Pollutants under Varying Thresholds

   If, as the Coalition Court stated, EPA had no choice but to regulate GHGs, then presumably it has the authority to rewrite thresholds applicable to other gases present in quantities that were never contemplated for regulation under the CAA. If the thresholds established by EPA for those gases are higher than what is set forth in the express provisions of the CAA, to establish standing a challenger would be forced to argue either that the "endangerment" finding for the gas is arbitrary or capricious, or that the higher threshold subjects the challenger to additional harm from the pollutant itself, but the challenger can never argue both at the same time. Given this catch-22, and the difficultly a party might face in challenging an "endangerment" finding, Coalition provides dangerous precedent for EPA to regulate emissions at whatever levels EPA deems appropriate, despite statutory language to the contrary.

   3. NEW SOURCE PERFORMANCE STANDARD REGULATION OF GHG

   1. The Path of New Source Performance Standard (NSPS) Regulation

   New Source Performance Standards (NSPS) are performance standards and work practices applied under CAA section 111 to new, modified and reconstructed sources to reflect the best emissions reduction system achievable that has been adequately demonstrated, taking into account costs; (164) although, as discussed below, EPA may under certain circumstances apply NSPS to existing sources. (165) Such standards are specific to categories of sources, not to specific pollutants. (166) EPA must review and revise standards for already listed categories of sources at least every eight years. (167)

1. The NSPS Settlement Agreement

   On December 23, 2010, EPA entered into two settlement agreements with Natural Resources Defense Council (NRDC), Sierra Club, Environmental Defense Fund, eleven blue states, the District of Columbia, and the City of New York (168) under CAA section 111. (169) One settlement related to both new and existing electric utility steam generating units (EGUs) (i.e., power plants), while the other related to new and existing petroleum refineries. (170) The EGU settlement required EPA to finalize proposed rules by May 26, 2012, and the refinery settlement required EPA to finalize proposed rules by November 10, 2012. (171) Neither deadline was met. (172) In response, New York and a number of other states and cities, and three environmental groups filed notices of their intent to sue EPA to compel completion of NSPS for new and existing power plants. (173)

2. Power Plant GHG New Source Performance Standards

   EPA originally proposed electric utility steam generating trait (EGU) NSPS on April 13, 2012, the first source category-specific NSPS relating to GHG emissions. (174) The proposed EGU NSPS limits emissions of carbon dioxide (C[O.sub.2]) from new fossil fuel-fired power plants that produce greater than twenty-five megawatts (MWs) to 1,000 pounds of C[O.sub.2] per megawatt-hour (MWh) of electricity generated on a gross basis. (175) EPA did not address existing coal-fired power plants or even address modifications to existing plants in the new EGU NSPS, based in the case of modifications on EPA's belief that most new modifications would be pollution control projects. (176) The failure to address modifications in a NSPS appears to run counter to the express provisions of the CAA. (177)

   EPA also did not differentiate between coal-fired and natural gas-fired units in its proposed standards, instead basing emissions limits for both upon the demonstrated performance of existing natural gas combined cycle units, finding that the natural gas combined cycle unit "qualifies as the 'best system of emission reduction' (BSER) that the EPA has determined has been adequately demonstrated ..." (178) and that "[a]lmost all the stationary combined cycle gas turbines built in the U.S. in the last five years can meet the proposed standard of 1,000 lb C[O.sub.2]/MWh." (179)

   A new coal plant may still be an option under the proposed rule if the new plant installs carbon capture and sequestration (CCS) technology to limit C[O.sub.2] emissions MWh to levels similar to or lower than those of natural gas units without CCS. (180) The proposed rule does allow an alternative CCS compliance pathway for new coal-fired generation without CCS at a limit of 1,800 pounds of [O.sub.2]/MWh if: 1) the EGU is designed to allow for installation of operation of CCS; 2) CCS is installed in the 11th year of operation; and 3) the owner or operator commits to enforceable limits of 600 pounds of [O.sub.2]/MWh after the installation of CCS, and 1,000 pounds of [O.sub.2]/MWh averaged over a thirty year period. (181) Transitional sources with complete Prevention of Significant Deterioration air construction permits received before April 13, 2012, are exempt from the proposed rule if construction is completed by April 13, 2013. (182)

   As of the writing of this article, it is unclear what the final rule for new power plants or the proposed rule for existing power plants ultimately will mandate. On June 25, 2013, in a speech at Georgetown University garnering significant media attention, President Obama introduced his new climate change plan, featuring power plant NSPS as the centerpiece for climate change action. (183) A few days later, on July 1, 2013, EPA sent a confidential revised rule to the White House Office of Management and Budget that some insiders report may establish separate standards for coal- and natural gas-fired units, apparently in attempt to address some of the more than two million public comments to the proposed NSPS for new power plants. (184) Under his new plan, the President issued a memorandum giving EPA until September 20, 2013 to complete a revised draft of the rewritten rule for new power plants, and until June 1, 2014 to propose a rule for modified, reconstructed, and existing plants, with a final rule due by June 1, 2015, and implementing regulations to be drafted by states due by June 30, 2016. (185) Even though these dates are much later than originally promised by EPA, states and environmental groups pushing for changes have delayed their promised lawsuits against EPA in response to the President's plan. (186)

   2. Implications of NSPS GHG Regulation for the Oil and Gas Industry

1. Implications of New and Existing Power Plant NSPS and the Promise of Cheap Natural Gas

   If the NSPS for new, modified, and existing power plants ultimately ban or severely limit the use of coal for electricity generation, the price of natural gas will rise, encouraging natural gas exploration and production, but at a cost to electricity consumers, especially if the rules already proposed by EPA for new plants continue to strongly favor natural gas and extend similar standards to modified and existing plants. (187) Endorsing the power industry's recent propensity to retire coal-fired plants in favor of low-cost natural gas, (188) EPA stated in its adopting release for the proposed rule for new plants that it "does not anticipate that this proposed rule will result in notable C[O.sub.2] emission changes, energy impacts, monetized benefits, costs, or economic impacts by 2020 ..." or "have any impacts on the price of electricity, employment or labor markets, or the US economy." (189) Such a prediction of no price increases is bold and may fail to consider the numerous factors that will affect future demand for natural gas in the United States.

   The prolific supply of natural gas from the recent United States shale production boom has kept natural gas prices low, so low in fact that some manufacturers are deciding to site new plants in the United States because the cost-benefit of inexpensive natural...