President Barack Obama’s administration took a two-pronged approach to regulating carbon dioxide emissions: push for comprehensive energy legislation with carbon cap-and-trade restrictions (the carrot) and have the EPA regulate carbon emissions under the Clean Air Act (the stick). The well-formulated plan was to push a reluctant Congress to quickly enact carbon controls, rendering the EPA’s much-less-desirable command-and-control approach moot.

Unfortunately for the president, both legislative proposals—the American Clean Energy and Security Act (ACES) and the American Power Act—never saw the light of day in the Senate, as many majority party senators found the proposals not advantageous their constituents. Senator Reid (D-Nev.) announced on July 22 that the Democratic Caucus was unable to come to a consensus on any form of energy bill this year. In the meantime, the EPA rulemaking process marched forward.

Setting aside the technical and rulemaking issues that led to the original Endangerment Finding (a necessary precursor for the EPA to finalize rulemaking), the EPA hit what seemed to be an impenetrable legal barrier with the Clean Air Act’s Title I Prevention of Significant Deterioration (PSD) preconstruction permitting process and its Title V operating permit process. These Clean Air Act (CAA) statutes clearly state the discharge limits of a “regulated pollutant” that triggers these provisions. Specifically, the PSD permitting threshold for these “major” sources is 100 tons per year (tpy).

Absurd Results

Mario Lewis, senior fellow at the Competitive Enterprise Institute, recently argued that literally millions of “previously  unregulated buildings and facilities—office buildings, apartment complexes, big box stores, enclosed malls, heated agricultural facilities, small manufacturing firms, even commercial kitchens—emit enough CO2 to meet these thresholds. In fact, the EPA itself estimates that PSD permit applications could jump from roughly 280 to 41,000 per year—more than a 140-fold increase. In addition, Title V permit applications would grow from 14,700 to 6.1 million per year—a 400-fold increase. The bureaucratic processes to obtain a PSD and operating permit would grind the economy to a standstill. Even the EPA has called this an ‘absurd result.’ 75 Fed. Reg. at 31,517”

Rather than pursue a legislative remedy—ask Congress to change the Clean Air Act to specifically include a particular limit for carbon dioxide—the EPA elected to perform a little legal sleight-of-hand and developed the “Tailoring Rule.”

Two parts of the Tailoring Rule bear mention here. First, the rule resets the CAA threshold for carbon dioxide from 100 tpy to 75,000 tpy effective January 2011 for the large facilities that already have CAA permits and have increased greenhouse gas (GHG) emissions by at least 75,000 tpy and July 2011 for all new facilities that emit at least 100,000 tpy. Second, each state was required to specify the best available control technology for new GHG-emitting projects.

Texas Responds

Texas Commission on Environmental Quality Chairman Bryan Shaw and Attorney General Greg Abbott responded to EPA Administrator Lisa Jackson with a scorching letter dated August 2. I have included a few of the more interesting paragraphs from that letter that eloquently states the official position of Texas, and probably most other states, on regulating GHGs. The letter begins:

In order to deter challenges to your plan for centralized control of industrial development through the issuance of permits for greenhouse gases, you have called upon each state to declare its allegiance to the Environmental Protection Agency’s recently enacted greenhouse gas regulations [“Tailoring Rule”]—regulations that are plainly contrary to United States law. To encourage acquiescence with your unsupported findings you threaten to usurp state enforcement authority and to federalize the permitting program of any state that fails to pledge their fealty to the Environmental Protection Agency (EPA).

On behalf of the State of Texas, we write to inform you that Texas has neither the authority nor the intention of interpreting, ignoring, or amending its laws in order to compel the permitting of greenhouse gas emissions.

The letter continues with some observations about the legal basis of the EPA’s prior and current rulemaking process to regulate GHG emissions:

In order to avoid the absurd results of the EPA’s own creation, you have developed a “tailoring rule” in which you have substituted your own judgment for Congress’s as to how deep and wide to spread the permitting burden. Notably absent from your rules is any evidence that they would achieve specific results; in fact, you assiduously (and correctly) avoid ascribing what environmental benefit may be achieved by mandating permits to emit a uniformly distributed, trace constituent of clean air, vital to all life, that is emitted by all productive activities on Earth.

Instead of acknowledging that congressional set emissions limits preclude the regulation of greenhouse gases, you instead rewrite those statutorily-established limits stating, “For our authority to take this action, we replay in part on the “absurd results” doctrine, because applying the PSD and title V requirements literally (as previously interpreted narrowly by EPA) would not only be inconsistent with congressional purpose for these programs. We also rely on the ‘administrative necessity’ doctrine, which applies because construing the PSD and title V requirements literally (as previously interpreted narrowly by EPA) would render it impossible for permitting authorities to administer the PSD provisions.”

The letter then returns to the rulemaking shenanigans by the EPA by adding a new class of pollutants “subject to regulation,” specifically GHGs. Because Texas air quality regulations, and probably those in most states, incorporate the CAA definitions, the EPA, by adding new terminology, requires Texas to go through new state rulemaking that could take many months and will not necessarily be successful. Texas is clearly not persuaded to go down that path:

Texas’s stationary source permitting program encompasses all “federal regulated new source review pollutants,” including, “any pollutant that otherwise is subject to regulation under the [federal Clean Air Act]. The rules of the Texas Commission on Environmental Quality (TCEQ), like the EPA’s rules, do not define the phrase “subject to regulation.” In its Tailoring Rule, however, the EPA promulgated—without notice—a definition of the previously undefined term, “subject to regulation.” This new definition…specifically relates to the regulation of greenhouse gases…[and]…raises the PSD permitting threshold for new and modified “major sources of other pollutants from 100 tons per year to 75,000 tons per year …

In the Tailoring Rule you have asked TCEQ to report to you by August 2, 2010, whether it would “interpret” the undefined phrase “subject to regulation” in TCEQ Rule 116.12 consistent with the newly promulgated definition in EPA Rule 51.166, in all its specifics and particulars. That is, you have effectively required that Texas agree to regulate greenhouse gases in the exact manner and method proscribed by the EPA.

The State of Texas does not believe that EPA’s “suggested” approach comports with the rule of law. The United States and Texas Constitutions, United States and Texas statutes, and EPA and TCEQ rules all preclude TCEQ from declaring itself ready to require permits for greenhouse gas emissions from stationary sources as you request.

The letter then goes through four specific constitutional and statutory law issues related to the Tailoring Rule that is now part of litigation pending in the D.C. Circuit Court of Appeals. We’ll pass over those legal problems and jump to the end game:

Each of these objections to EPA’s demand for a loyalty oath from the State of Texas would suffice to justify our refusal to make one. Indeed, it is an affront to the congressionally established judicial review process for EPA to force states to pledge allegiance to its rules (or forfeit their right to permit) on the final day by which states must exercise their statutory right to challenge those same rules. Texas will not facilitate EPA’s apparent attempt to thwart these established procedures and ignore the law.

The letter closes by asking the EPA to “stay the effectiveness of your greenhouse gas rules.” Given the EPA’s prior experience with the D.C. Circuit Court of Appeals (striking down both the Clear Air Interstate Rule and the Clean Air Mercury Rule in the past), I suspect the EPA will ignore the Texas request and surely dozens of similar letters from other states. The stampede of state resistance to the EPA’s bullying tactics will surely push the EPA’s handling of GHG emission rulemaking to the Supreme Court, but it will take at least a couple of years. What isn’t clear is whether Congress has the appetite to rein in the EPA or whether the D.C. Circuit Court of Appeals will affirm a stay in the rulemaking until a thorough legal review is completed.

The End Game

If the minority party retakes control of the Senate or House in the upcoming elections, expect one of its first legislative initiatives to be putting a bill on the president’s desk that precludes the EPA from regulating GHGs under the CAA. When that happens, the president’s “carrot and stick” strategy will look more like a rock and a hard place.

—Dr. Robert Peltier, PE, is COAL POWER’s editor-in-chief.