On March 26, 2012, the United States Court of Appeals for the Fifth Circuit issued an opinion in Luminant Generation Co., L.L.C. v. EPA, vacating the United States Environmental Protection Agency's (EPA) September 15, 2010 disapproval of three provisions of Texas's State Implementation Plan (SIP), including Texas's Standard Permit for Pollution Control Projects (PCP) promulgated at 30 T.A.C. § 116.617, and two general standard permit provisions, 30 T.A.C. §§ 116.610(a) and (b). Texas adopted the PCP Standard Permit because of the inclusiveness of the Texas Clean Air Act, which otherwise would require case-by-case permit reviews for many kinds of beneficial emission reduction projects. The court concluded that EPA did not disapprove the PCP Standard Permit based on the exclusive, applicable factors for approving or denying proposed SIP revisions expressly set forth in the Clean Air Act (the "Act"). Instead, the agency improperly disapproved the PCP Standard Permit "based on its purported nonconformity with three non-statutory standards that EPA created out of whole cloth." Slip op. at 21. The court remanded the disapproval decision to EPA for expeditious reconsideration, but further noted that it is "difficult to conceive . . . how [EPA] could disapprove the PCP Standard Permit under the appropriate statutory factors." Slip op. at 21-22 & n.13.
Vinson & Elkins participated in the case, with Harry Reasoner arguing on behalf of Luminant.
Background
Pursuant to its significant discretion under the Act to develop its own "minor" new source review (NSR) program1 as part of its SIP,2 Texas first promulgated PCP standard permits in 1993. See 18 Tex. Reg. 8597 (Nov. 19, 1993); 18 Tex. Reg. 3409 (May 28, 1993). As the Texas Commission on Environmental Quality (TCEQ), the Texas agency tasked with administering the Act, recently explained, PCP standard permits "provide a method to expedite the authorization process for certain [PCPs] that do not necessitate a full case-by-case NSR permit review." TCEQ, Air Quality Standard Permit for Pollution Control Projects Summary Document (Feb. 9, 2011).3 These first PCP standard permits applied only to projects that reduced emissions of volatile organic compounds and nitrogen oxides. Id. In 1994, however, Texas adopted general requirements for its standard permit program and expanded its PCP standard permits to apply to projects that reduced emissions of any regulated pollutants. 19 Tex. Reg. 3055, 3064-65 (Apr. 22, 1994). Texas made several additional changes to its standard permit program over the following years, each time submitting its revisions to EPA for approval into Texas's SIP. EPA failed to act on Texas's SIP revisions related to the state's standard permit program until 2003, when EPA approved most of the standard permit program, but explicitly declined to approve or disapprove the PCP Standard Permit, which was promulgated in Texas's air quality regulations at 30 T.A.C. § 116.617. 68 Fed. Reg. 64,543, 64,546-47 (Nov. 14, 2003).
In 2006, Texas again amended its PCP Standard Permit and the standard permit general provisions in 30 T.A.C. § 116.610(a) and (b) to, among other things, explicitly limit the PCP Standard Permit's availability only to projects that did not trigger major NSR permitting requirements. See 31 Tex. Reg. 515, 521-22 (Jan. 27, 2006). Texas made these changes to conform the PCP Standard Permit to EPA regulations after the D.C. Circuit vacated EPA rules that had completely exempted PCPs from major NSR. Id. at 517, 521 (citing New York v. EPA, 413 F.3d 3 (D.C. Cir. 2005)). Texas submitted these proposed SIP revisions to EPA for approval on February 1, 2006. EPA proposed to disapprove of these SIP revisions on September 23, 2009, 74 Fed. Reg. 48,467 (Sept. 23, 2009), and issued a final disapproval on September 15, 2010, over three years after its 18-month deadline had expired. 75 Fed. Reg. 56,424 (Sept. 15, 2010). Multiple petitioners, including the State of Texas, Luminant Generation Company, LLC, and other companies and industry groups,4 timely challenged the EPA's disapproval in the Court of Appeals for the Fifth Circuit.
The Court's Opinion
EPA offered three reasons for disapproving Texas's 2006 PCP Standard Permit, but the court resoundingly rejected all of them as impermissible non-statutory bases for disapproval. First, EPA asserted that the PCP Standard Permit "does not meet the requirements of the Texas Minor NSR Standard Permits SIP." 75 Fed. Reg. at 56,445. The court held, however, that the Act did not authorize EPA to review proposed SIP revisions for compliance with state law. Slip op. at 11. According to the court, the Act only gives EPA authority to disapprove a SIP revision if it "would interfere with any applicable requirement concerning attainment" of the NAAQS "or any other applicable requirement of" the Act. Id. (quoting 42 U.S.C. § 7410(l)). The only provision of the Act that applies to state minor NSR programs merely requires that such programs "'assure that [NAAQS] are achieved.'" Id. (quoting 42 U.S.C. § 7410(a)(2)(C)). Because EPA impermissibly rejected the PCP Standard Permit on state law grounds, "EPA overstepped the bounds of its narrow statutory role in the SIP approval process." Id.
Second, EPA contended that it disapproved the Texas PCP Standard Permit because its applicability was not limited only to "similar sources" — i.e., narrow categories of emission source types such as oil and gas facilities, asphalt plants, or concrete batch plants — but could apply broadly to any type of emission source. See 75 Fed. Reg. at 56,447; 74 Fed. Reg. at 48,476 & n.10. EPA pointed to several agency guidance documents as authority for its asserted "similar source" requirement for standard permit. Slip op. at 13. EPA, however, was unable to point to any specific provision of the Act from which it derived the "similar source" requirement, other than the Act's general requirement set forth in 42 U.S.C. § 7410(a)(2) that control measures and emission limitations in SIPs be "enforceable." Id. The court determined that it owed minimal deference to EPA's asserted interpretation of 42 U.S.C. § 7410(a)(2) because the agency first advanced this interpretation in its litigation briefing. Id. at 15. Even giving EPA's interpretation its due deference, the court concluded that "the Act does not authorize EPA to impose a 'similar source' requirement on minor NSR." Id. The court further held that the "similar source" requirement was not necessary to prevent interference with the NAAQS. Id. at 15-16. As the court pointed out, the PCP Standard Permit included a provision that explicitly prohibited its use when the TCEQ Executive Director determined that the proposed project had the potential to cause an exceedance of the NAAQS. Id. at 15. Because EPA is not allowed to "graft a 'similar source' rule onto the applicable provisions of the" Act, the court concluded EPA again stepped out of bounds in disapproving Texas's PCP Standard Permit.
Third, EPA asserted that it disapproved the PCP Standard Permit because it gave the TCEQ Executive Director too much case-by-case discretion, and did not include "replicable" limits on how that discretion was to be exercised. See 75 Fed. Reg. at 56,447; 74 Fed. Reg. at 48,476. The court rejected this final asserted basis for EPA's disapproval, pointing out that EPA had never been able to point to "any applicable provision of the Act or its regulations that includes a 'replicability' standard." Id. at 19. The court was again not persuaded by EPA's reliance on its own policy documents as its authority for imposing the "replicability" requirement and found unpersuasive EPA arguments that the requirement was derived from any provision of the Act applicable to minor NSR. Id. at 19-20. "Like Texas law and the 'similar source' limitation, 'replicability' is not a legal standard that the Act authorizes the EPA to enforce when reviewing a state's minor source NSR program." Id. at 20.
With regard to Texas's revisions to §§ 116.610 (a) and (b), EPA failed to offer any stated reason for its disapproval. Slip op. at 10. EPA conceded to the court that it had acted arbitrarily and capriciously in rejecting those two provisions. Id.
Because EPA impermissibly rejected the revisions to Texas's SIP based on non-statutory standards or failed to articulate any basis whatsoever, the court vacated EPA's disapproval of §§ 116.610 (a), 116.110(b), and 116.617. Id. at 22. The court remanded the disapproval decision to EPA, and ordered EPA to "most expeditiously" reconsider its decision, particularly because the agency had already "waited until more than three years after the statutory deadline . . . ." Id. at 21-22.
Should EPA have any inclination to again reject the 2006 PCP Standard Permit on remand, the court let it be known that it would be highly skeptical of such a decision. The court noted that "[i]t is difficult to conceive, and the EPA has not suggested, how it could disapprove the PCP Standard Permit under the appropriate statutory factors." Id. at 21 n.13.
Analysis
The court clearly and resoundingly confirmed that EPA has very little discretion to disapprove states' SIP revisions, particularly when those revisions involve minor NSR. Unless EPA can point to a particular provision of the Act that clearly prohibits what the state has proposed or can show that the proposed SIP revision will threaten compliance with the NAAQS, EPA must approve the SIP revision. This bodes well for states that seek to implement minor NSR permitting regulations, so long as the regulations include appropriate safeguards to protect the NAAQS. It also bodes well for the challenges to the recent spate of EPA disapprovals of other elements of Texas air permitting program, which remain pending before the Fifth Circuit.
The opinion also provides a level of comfort to the multitude of stationary source owners in Texas that have relied on the PCP Standard Permit to authorize numerous projects since the mid-1990s. Because EPA's disapproval of Texas's PCP Standard Permit was so thoroughly rebuked by the court, the agency seems to have little choice now but to approve it. If the 2006 PCP Standard Permit is approved into Texas's SIP, facilities that carried out projects under it will no longer face the potential threat of federal enforcement.
Finally, it is worth noting that even if EPA approves the 2006 PCP Standard Permit, Texas has since amended it, and it is no longer available to authorize new projects. On February 25, 2011, TCEQ adopted amendments to 30 T.A.C. § 116.617 providing that the agency will not accept any new registrations or issue any renewals of existing registrations under the regulatory PCP Standard Permit, effective March 3, 2011. 30 T.A.C. § 116.617(a)(5) (2012); 36 Tex. Reg. 1305, 1308 (Feb. 25, 2011). TCEQ, however, replaced the regulatory PCP Standard Permit promulgated at § 116.617 with a non-rule PCP Standard Permit,5 which TCEQ adopted pursuant to a SIP-approved provision of its general standard permit regulations that allows it to create such non-rule standard permits. See 30 T.A.C. § 116.601(a)(2) (authorizing TCEQ to issue non-rule standard permits so long as it complies with the public notice and comment requirements of § 116.603); 68 Fed. Reg. 64,543, 64,546-47 (approving 30 T.A.C. § 116.601 and other provisions of Texas's standard permit program).6
The court's opinion is available here.
Footnotes
1 "Minor" NSR is a pre-construction permitting program that applies to new and modified sources with levels of emissions below specified "major" source thresholds. Compared to "major" NSR, for which the Act and EPA's implementing regulations provide many specific and detailed requirements, the Act and EPA's implementing regulations set very few standards for minor NSR programs.
2 As the court explained, the Act gives EPA the responsibility of identifying pollutants and establishing National Ambient Air Quality Standards (NAAQS), but largely leaves the task of implementing and achieving compliance with the NAAQS to the states. Slip op. at 2. The states meet their obligations under the Act by adopting and implementing SIPs. States must submit their SIPs and any revisions to their SIPs to EPA for approval, but "the Act confines EPA to the ministerial function of reviewing SIPs for consistency with the Act's requirements." Slip op. at 2-3 (citing 42 U.S.C. § 7410(k)(3)). The Act requires EPA to approve or disapprove of a SIP revision within 18 months of the state's submittal. See 42 U.S.C. §§ 7410(k)(1)(B), (k)(2), (k)(3).
3 Available at http://www.tceq.texas.gov/assets/public/permitting/air/Announcements/pcpsp-exsum.pdf.
4 Petitioners are Luminant Generation Company, LLC; Oak Grove Management Company, LLC; Big Brown Power Company, LLC; Luminant Mining Company, LLC; Sandow Power Company, LLC; Texas Association of Business; Texas Association of Manufacturers; Texas Oil & Gas Association; Chamber of Commerce of the United States; and the State of Texas.
5 See Air Quality Standard Permit for Pollution Control Projects, Effective Date: February 9, 2011, available at http://www.tceq.texas.gov/assets/public/permitting/air/Announcements/pcpsp-nonrule.pdf.
6 TCEQ amended parts of 30 T.A.C. § 116.601, effective March 3, 2011, but § 116.601(a)(2) was not affected, see 36 Tex. Reg. at 1305, 1308, and all of 30 T.A.C. § 116.601 was SIP-approved on February 9, 2011, when TCEQ adopted the non-rule PCP Standard Permit.
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