The United States Supreme Court’s decision in Massachusetts v. EPA¹ in April of 2007 turned the nation’s attention towards the looming regulation of greenhouse gas emissions.  The Court’s decision established greenhouse gases as pollutants under the Clean Air Act and directed EPA to examine its regulations thereunder.  At the same time, Congress began considering new laws to address climate change.  To date, neither EPA nor Congress has spoken definitively about greenhouse gas regulation, but it is clear that regulation is imminent.  Indeed, media reports indicate that EPA plans to publish its first formal response to Massachusetts v. EPA any day now, in the form of an Advanced Notice of Public Rulemaking (ANPR).  In light of the ever-changing horizon in this area of law, keeping up to date with the ongoing status of the regulatory and legislative activity is important to ensure your company’s preparedness when laws are enacted.

EPA’s Reaction to Massachusetts v. EPA

Massachusetts v. EPA arose out of a challenge to EPA’s decision not to regulate greenhouse gas emissions for motor vehicles.  In its opinion, the Supreme Court found that carbon dioxide and other greenhouse gases are “pollutants” under the Clean Air Act and that EPA has the authority to regulate them under existing law.  As a result, the Supreme Court instructed EPA to decide whether these pollutants merit regulation under the endangerment standard of the Clean Air Act.  The endangerment standard requires that EPA regulate pollutants that may reasonably be anticipated to endanger public health or welfare. The Court stated that, to avoid regulating greenhouse gases under the Clean Air Act, EPA must either find that greenhouse gases do not contribute to climate change or provide a rational explanation as to why it will not make a determination regarding the effect of greenhouse gases on climate change.

EPA thereafter pledged to issue proposed greenhouse gas regulations for mobile sources (i.e., motor vehicles) by the end of 2007, but did not meet this deadline.  However, recent press reports indicate that EPA had, in fact, developed the proposed rule, including an endangerment finding, as of December 2007, but the White House stopped its issuance due to concerns over the ramifications of the rule.  EPA instead announced that it would issue an Advance Notice of Proposed Rulemaking (ANPR) in Spring 2008 to obtain public comment on greenhouse gas regulations for mobile and stationary sources.²  Although not yet published, the ANPR is expected to be forthcoming any day.

Nevertheless, the United States Court of Appeals for the District of Columbia Circuit has recently taken the position that it will not compel EPA to act.  In April of 2008, growing impatient with EPA’s inaction, the original petitioners in Massachusetts v. EPA filed a petition for writ of mandamus with the District of Columbia Circuit asking the court to force EPA to decide within 60 days whether greenhouse gas emissions endanger public health or welfare.  On June 26, 2008, the court denied the petition without explanation, leaving EPA’s timeline for taking action to its own discretion. 

Once issued, the ANPR will seek comment on greenhouse gas regulations for both mobile and stationary sources.  Stationary sources will likely be regulated, even though not addressed in Massachusetts v. EPA, because the Clean Air Act definition of “pollutant” applies to all sources.  The emission of a “pollutant” (i.e., greenhouse gases) from a stationary source triggers New Source Review, a program that requires new or modified facilities that emit pollutants above threshold levels to install modern pollution control equipment.  The issue to watch under New Source Review is the threshold EPA assigns for greenhouse gases.  While thresholds of 100 tpy or 250 tpy for new facilities and 25 tpy or 40 tpy for modifications to existing facilities are typical thresholds for pollutants, using these thresholds for greenhouse gases would subject innumerable sources to New Source Review.  Greenhouse gases are emitted at a significantly higher rate than those pollutants currently regulated.  For example, a commercial furnace emits approximately 250 tpy in greenhouse gas emissions.  A threshold level of 250 tpy or less would subject every building that has a commercial furnace, such as hospitals and apartment complexes, to New Source Review and the accompanying pollution control equipment.  Once EPA publishes the ANPR, industry will have the opportunity to comment on the issue of New Source Review thresholds, as well as the status of the best available science regarding the effects of greenhouse gases and the appropriateness of mandatory control technologies.  The ANPR will mark the beginning of the lengthy rulemaking process expected to lead to the final regulation of greenhouse gases. 

Currently, the Environmental Appeals Board (EAB) is also struggling to determine the role of Massachusetts v. EPA in the issuance of Clean Air Act permits in the absence of greenhouse gas regulations.  In In Re Deseret Power Electric Cooperative, the EAB is reviewing a final prevention of significant deterioration (PSD) permit granted by EPA Region 8 to Deseret Power Electric Cooperative authorizing the construction of a new waste coal fired electric generation unit at its power plant in Bonanza, Utah.³  The final permit, which was issued by EPA a few months after Massachusetts v. EPA, did not address carbon dioxide, a greenhouse gas.  The Sierra Club petitioned for review of the permit based in part on the failure of the EPA to include a best available control technology (BACT) emission limit for carbon dioxide in the permit.  EPA’s response was similar to its arguments in Massachusetts v. EPA—deferring to agency interpretation of a “pollutant” and maintaining that carbon dioxide is not currently subject to a provision in the Clean Air Act or any regulations promulgated thereunder.  Oral arguments have already been held in the matter, but the EAB requested further briefing from EPA Region 8 and the EPA’s Office of Air and Radiation, which will not be completed until mid-August 2008.  The issue to watch in this case is the EAB’s interpretation of the effect of the Supreme Court’s decision in Massachusetts v. EPA in the absence of an amendment to the Clean Air Act or an affirmative EPA regulation that explicitly addresses carbon dioxide. The potential end result of this case may be an order from the EAB requiring BACT for carbon dioxide in future PSD permits, regardless of carbon dioxide’s inclusion in the Clean Air Act or EPA regulations.  These types of challenges to PSD permits are becoming somewhat of a trend.  On June 30, 2008, a Georgia state court ruled in favor of petitioners challenging a PSD permit for a coal-fired power plant on this very same basis.⁴  The Georgia court found that carbon dioxide was subject to regulation under the Clean Air Act and that the PSD permit could not be issued without carbon dioxide limitations based on a BACT analysis.

The Congressional Initiatives

In contrast to EPA, Congress’ initial reaction to the issue of climate change was swift.  Several climate change bills aimed at reducing the nations greenhouse gas levels were introduced in Congress throughout 2007 and 2008.  The majority of those bills proposed a cap-and-trade system regulating specified industries with incremental reduction goals set over a period of several decades.  The Lieberman-Warner Climate Security Act was the frontrunner and was the only legislation to make it to floor.  The legislation proposed to create a cap-and-trade system for greenhouse gas emissions where the regulated industries (electric utilities, industrial manufacturers, and petroleum refiners and importers) would be required to hold allowances for each ton of greenhouse gas emitted.  Allowances would be limited and would be managed to accomplish a 70% reduction of the nation’s 2005 levels of greenhouse gas by 2050.  The Lieberman-Warner Climate Security Act was sent to the Senate floor for debate on June 4, 2008.  However, opponents filibustered, and supporters fell 12 votes short of those necessary to invoke cloture.  Cloture would have ended the filibuster and allowed the Senate to begin substantive discussions on amendments.  As a result of this procedural defeat, the Senate climate debate appears closed for 2008.   

While it seems that the legislature’s formal consideration of greenhouse gas bills has ended for the year, companies should remain aware of legislative developments in 2009 and beyond.  Both presidential candidates John McCain and Barack Obama were staunch supporters of cap-and-trade legislation in the Senate and have made the issue an integral part of their campaigns.

Advice for U.S. Companies

At the very least, U.S. companies should start preparing now to face eventual greenhouse gas regulation.  Understanding your company’s “carbon footprint” (the measurement of greenhouses gases produced by your company’s activities) and determining what opportunities your company might have to efficiently reduce greenhouse gas emissions in advance of mandatory regulation may pay substantial dividends when a final regulatory scheme is enacted. 

For more information, please contact Greg L. Johnson (gljohnson@liskow.com) or Clare M. Bienvenu (cmbienvenu@liskow.com) in our New Orleans office and Marie Carlisle (mlcarlisle@liskow.com) in our Houston office or go to www.liskow.com.

The materials in this document are made available by Liskow & Lewis for informational purposes only and are not legal advice. The transmission and receipt of information contained in the document do not form or constitute an attorney-client relationship. Persons receiving the information in this document should not act upon the information without seeking professional legal counsel. The materials in this document may not reflect the most current legal developments, verdicts or settlements, and should not be considered an indication of future results.

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