Less than 24 hours after the unveiling of sweeping Senate legislation to reduce U.S. greenhouse gas emissions, the Environmental Protection Agency released a final Clean Air Act rule (PDF)  that defines emission thresholds for greenhouse gas permitting requirements for power plants and other large stationary sources.

The agency’s so-called "tailoring" rule—which industry groups are likely to challenge as exceeding the EPA’s authority under the Clean Air Act—phases in permitting requirements for large sources that collectively are responsible for about two-thirds of total U.S. greenhouse gas emissions.

While the rule released on May 13 does not prescribe emission limits for these facilities, it sets in motion a process that by the beginning of next year will require states to specify best available control technology (BACT), on a case-by-case basis, for greenhouse gas–emitting facilities seeking new permits.

The EPA later this year is expected to issue nonbinding guidance on what constitutes BACT to help states in revising their existing permit programs. Although it remains unclear what the EPA will recommend in the guidance, almost certainly the guidelines will stress the importance of improved energy efficiency in reducing emissions.

Over time, however, intervenors in state permitting proceedings, including environmentalists and developers of innovative pollution control technologies, will press states to include more stringent technology requirements in their BACT analyses, according to a research note issued by Wall Street research firm Bernstein Research.

These interventions are generally expected to drive the electric utility industry away from conventional coal-fired generation toward cleaner forms of generation such as integrated gasification combined cycle, to cite but one example.

And when carbon capture and storage (CCS) technology becomes commercially deployable in a decade or so, states likely will add CCS to the list of options they will consider in their BACT analyses.

The EPA action also could prompt states to encourage utilities to switch power plants from coal to cleaner-burning natural gas as a way to meet emission reduction requirements.

Timing Is No Coincidence

The timing of the EPA’s announcement, made one day after Sens. John Kerry (D-Mass.) and Joseph Lieberman (I-Conn.) unveiled their climate change legislation, suggests a clear Obama administration signal to the Senate that if lawmakers fail to enact the Kerry-Lieberman bill, the EPA will regulate greenhouse gas emissions using its Clean Air Act authority.

Under the tailoring rule’s phased-in approach, permitting requirements will start in January 2011 for large facilities that already are seeking Clean Air Act permits for other pollutants. These facilities will be required to seek permits for greenhouse gas releases if they increase their greenhouse gas emissions by at least 75,000 metric tons per year.

In July 2011, the permitting requirements will expand to cover all new facilities that would have emissions of at least 100,000 metric tons per year—even if they would not have to apply for permits for emissions of other pollutants. Also brought under the greenhouse rule at that time will be modifications at existing facilities that result in greenhouse gas emission increases of at least 75,000 metric tons per year.

An earlier version of the rule had proposed an emissions threshold of 25,000 metric tons annually, but EPA Assistant Administrator for Air and Radiation Gina McCarthy said that public comments on the proposal convinced the EPA that that threshold would require regulation of buildings and businesses that agency never intended to regulate.

"We found that at the proposed threshold we were going to be reaching sources we had not intended to reach…like large apartment buildings," McCarthy said.

Indeed, the EPA’s objective in crafting the tailoring rule was to avoid having to regulate tens of thousands of smaller emission sources such as schools and hospitals.

The Clean Air Act permitting program’s emission threshold for criteria pollutants such as lead and sulfur dioxide are 100 and 250 tons per year. But because the greenhouse gas emission sources of most concern emit at much higher volumes—in tens of thousands of tons—the rule "tailors" those thresholds to capture only those sources that emit the bulk of U.S. greenhouse gas emissions.

As a result, McCarthy said the rule would affect only 2% of U.S. businesses, accounting for 67% of total U.S. emissions.

Expect More Regulations

The rule also includes an EPA commitment to undertake a separate rulemaking—to begin in 2011 and conclude in mid-2012—to take comment on an additional step for phasing in greenhouse gas permitting and may discuss whether certain smaller sources can be excluded from permitting permanently. In addition, the agency said it will explore ways to streamline the permitting process.

Whatever the EPA decides on roping in additional sources, no sources that emit less than 50,000 tons per year will be required to obtain greenhouse gas permits, and smaller sources for which permitting eventually is required will not have to obtain these permits before April 30, 2016, McCarthy said.

The tailoring rule derives from a landmark Supreme Court decision in 2007 that held that carbon dioxide (CO2) is a pollutant under the Clean Air Act and that the EPA is obligated to regulate CO2 if it finds it endangers public health and welfare. The EPA issued that endangerment finding in December. The agency then issued rules with the Department of Transportation limiting motor vehicle greenhouse gas emissions. That regulation, in turn, triggered a Clean Air Act requirement that states if the agency regulates a pollutant under one section of the law, it must regulate that pollutant under all sections of the statute.

Legal Challenges Under Way

The tailoring rule is expected to provoke immediate legal challenges likely to focus in part on whether the EPA has the authority to change emission thresholds statutorily imposed by Congress.

The EPA anticipates this attack by noting that the rule is necessitated by the legal doctrines of "absurd results" and "administrative necessity." The EPA said that following the precise language of the Clean Air Act permitting provisions would lead to the "absurd result" of forcing regulation on tens of thousands of sources, an outcome that would impose a huge administrative burden on state permitting departments and lead to years of delay in finalizing permit applications for new power plants and industrial facilities.

Thus, the EPA said it opted to tailor the emission thresholds out of "administrative necessity" so that it can reach the bulk of U.S. emission sources, thus honoring the intent of Congress that it regulate greenhouse gas emissions.

A variety of companies and trade and business associations already are challenging the EPA’s endangerment finding. If the courts uphold these challenges, they will nullify the tailoring rule and prevent the EPA from regulating greenhouse gas emissions.

Chris Holly is a reporter for COAL POWER’s sister publication, The Energy Daily.