July 22, 2014. On June 18, 2014, EPA published a proposed rule to reduce emissions of carbon dioxide (CO2) from existing coal-fired power plants. Both Duke Energy and DENR’s Division of Air Quality indicated a detailed review of the draft rule would be required to fully understand the impact on North Carolina’s electric utilities. More recently, Donald van der Vaart, DENR’s Energy Policy Advisor, made a presentation on the proposed CO2 rules to the N.C. Energy Policy Council. You can find both a video and a copy of the powerpoint presentation here. Rather than discussing the rule’s potential impact on the state’s electric utilities, the presentation questioned the legal basis for the EPA rule. The legal analysis identified some legitimate questions about interpretation of the Clean Air Act provision underlying the CO2 rule, but the analysis also had significant flaws.
EPA proposed the CO2 rule under Section 111 of the Clean Air Act, which authorizes EPA to adopt standards for new and existing sources of air pollution by category; in this case, the category consists of electric generating units burning fossil fuels. (The Clean Air Act also gives EPA two other tools for addressing air pollution — Section 108 authorizes EPA to adopt ambient air quality standards to be met on an area-wide basis and Section 112 allows EPA to regulate listed hazardous air pollutants, like mercury, by source category.)
DENR’s presentation to the Energy Policy Council offered some criticism of EPA’s proposed CO2 standard for new power plants, but made a more pointed attack on the rule addressing emissions from existing power plants. The presentation both questioned EPA authority to regulate CO2 emissions from existing power plants under Sec. 111(d) and the appropriateness of including transition to natural gas; expanded use of nuclear power and renewable energy sources; and energy efficiency as elements of the performance standard for existing coal-fired power plants. This post will likewise focus on the proposed existing source rule under Sec. 111(d) and particularly the DENR objections to the rule that need more context or correction:
DENR Objection: EPA cannot use Sec. 111(d) of the Clean Air Act to set a standard for an existing air pollution source also regulated under Sec. 112 (addressing hazardous air pollutants) even if the standard proposed under Sec. 111(d) addresses a pollutant that is not regulated under Sec. 112.
Counterpoint: This seems to be a more open question that the presentation suggests. When Congress added Sec. 111 to the Clean Air Act in 1990, the House version prohibited use of Sec. 111(d) to set standards for existing sources regulated under Sec. 112 and the Senate version prohibited its use to set standards for pollutants regulated under Sec. 112. Both versions became part of the Statutes at Large. EPA has consistently interpreted Sec. 111(d) to prohibit adoption of existing source standards for pollutants regulated under Sec. 112. (See a paper by Adam Kushner and Judith Coleman on the background of the Sec. 111(d) language and EPA’s interpretation.) Under EPA’s interpretation, Sec. 111(d) can be used to regulate CO2 emissions from existing coal-fired power plants because CO2 has not been regulated under Sec. 112 as a hazardous air pollutant.
As a policy matter, EPA certainly seems to have the better interpretation; otherwise, the language in Sec. 111(d) would create a loophole preventing regulation of a dangerous air pollutant from an existing source (in this case, a power plant) simply because the facility also emits hazardous air pollutants regulated under Sec. 112. If EPA’s interpretation is challenged, the question will be whether the court recognizes the existence of a conflict in the statutory history of Sec. 111(d) and defers to EPA’s interpretation.
DENR quotes the Natural Resources Defense Council (NRDC) in support of the more restrictive interpretation of Sec. 111(d), but the NRDC comments concerned an EPA rule regulating mercury emissions from power plants. Since mercury had been listed as a hazardous air pollutant under Sec. 112, NRDC challenged EPA’s decision to use Sec. 111 instead of Sec. 112 as the basis for the Clean Air Mercury Rule (CAMR). NRDC did not argue that EPA lacked authority to regulate emissions of other pollutants from the same source under Sec. 111 and the federal court decision in the CAMR case did not decide that issue. (The Kushman/Coleman paper notes that the CAMR decision erroneously says that EPA conceded a lack of authority.)
DENR Objection: Sec. 111(d) cannot be used to regulate pollutants listed under Sec. 108 of the Clean Air Act (42 U.S.C. § 1408).
Counterpoint: DENR correctly notes that Sec. 111(d) cannot be used to regulate an air pollutant already covered by an ambient air quality standard or listed for development of an ambient air quality standard under Clean Air Act Sec. 108. But EPA has not adopted an ambient air quality standard for CO2 or listed CO2 under Sec. 108. The DENR presentation assumes that EPA’s 2009 finding that CO2 (in combination with other greenhouse gasses) endangers public health and welfare automatically resulted in a Sec. 108 listing. The 2009 “endangerment” finding was made under Sec. 202 of the Clean Air Act as a necessary first step toward regulating motor vehicle emissions of greenhouse gasses. But an “endangerment” finding by itself does not cause a pollutant to be listed under Sec. 108. The two are distinct actions.
DENR Objection: Sec. 111(d) requires controls on individual emission sources; the “performance standard” cannot be met by alternative CO2 reduction measures (such as energy efficiency and increased use of renewable energy sources) allowed under the proposed EPA rule.
Counterpoint: This again appears to be a much more open question than the presentation would suggest. EPA’s proposed rule gives states the flexibility to use measures other than pollution controls on existing power plants in developing the “standard of performance” required under Sec. 111(d). EPA identifies four “building blocks” : increased efficiency at existing coal-fired units; transition from coal to natural gas; greater reliance on nuclear energy and renewable energy sources; and management of electricity demand. There may well be a debate over what can be considered a “standard of performance” under Sec. 111, but the question has not been settled. A number of legal scholars endorsed a similarly broad interpretation of the “standard of performance” under Sec. 111 well before release of the proposed EPA rule. (You can find a 2011 discussion paper on compliance flexibility under Sec. 111 here.)
EPA’s interpretation is also entitled to deference where Congress has not clearly required (or barred) a particular approach to implementation. The federal court decision cited by DENR as rejecting pollution trading under Sec. 111, ASARCO, Inc. v. EPA, was effectively overruled by the later U.S. Supreme Court decision in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). In Chevron, the court upheld EPA’s interpretation of “stationary source” to encompass all of the emission sources at a facility — an outcome contrary to the earlier ASARCO decision-– giving industry the flexibility to modify individual sources at a facility within a facility-wide emissions cap. The Chevron decision also made a very clear statement about deference to agency interpretation: “When a challenge to an agency construction of a statutory provision, fairly conceptualized, really centers on the wisdom of the agency’s policy rather than whether it is a reasonable choice within a gap left open by Congress, the challenge must fail”. EPA’s interpretation of the “standard of performance” language in Sec. 111 to allow greater compliance flexibility and lessen the regulatory burden on electric utilities should be entitled to the same deference.
Whatever the strength or weakness of DENR’s legal analysis of the proposed CO2 rule for existing coal-fired power plants, the fact of the critique certainly sends a message. It suggests that the McCrory administration may intend to oppose the proposed rule whether the impact on North Carolina will be positive or negative.