US climate regulation set to heat up in 2011

With pressure mounting on Canadian climate action, 2011 should shed some light on the future of climate regulation in Canada. First, the recent action by the US has resulted in calls for Canada to follow suit. Also, we have the pressures on provincial climate (and green energy) policies. With the Western Climate Initiative (WCI) set to launch in 2012, provinces will developing regulatory requirements for the WCI’s cap and trade system, but with an election in Ontario that could send that province’s green plans into reverse and limited participation in the U.S., the liquidity (read effectiveness) of the WCI system looks shaky at best.

Focusing on the U.S. action…

On January 2, 2011, the Prevention of Significant Deterioration (PSD) requirements (under s.160 of the Clean Air Act) began applying to GHG emissions. These requirements result in source-specific emission limits for the biggest new and modified sources. Emission limits are based on what is achievable given the best available control technology (BACT) for the source. So new and modified sources need to build using clean technology and operate under an emissions limit associated with that technology.  The fun here, comes from the numerous and ongoing litigation, a Congressional vendetta, and Texas, who has refused to incorporate new GHG requirements in their PSD regulations.

On December 23, 2010, the EPA announced that in addition to the PSD requirements for new and modified GHG sources, there will also be national ‘sector-based’ performance standards – New Source Performance Standards (NSPS) – (under s.111 of the CAA) for GHG emissions from new (and modified) electricity generators and petroleum refineries. These standards are a question mark right now in terms of how they will be set out and what, if any, work standards or techniques will accompany the NSPS. In terms of stringency, the NSPS acts as a ‘floor’ for any PSD BACT-based standard – meaning the PSD emission limits will not be any less-strict than the NSPS.  The final standards are due by the end of 2012.

Also of interest here is that action under s.111 by the EPA for new sources, requires States to address existing sources in these sectors. To help fulfill that requirement, the EPA will release guidance for States. This specific requirement for States to regulate existing sources in a sector for which an NSPS has been set, has a narrow application (only for pollutants that don’t have a National Ambient Air Quality Standard (NAAQS) and aren’t addressed as a hazardous air pollutant (HAP)) and has rarely, if at all, been used… this is for all intents and purposes, new ground. Some even say that the NSPS provisions give just enough room to for the EPA to start an emissions trading system. EPA guidelines are due at the same time as the NSPS but won’t likely be required any earlier than 2015.

What is interesting here as well, is how this move to address GHGs using NSPS provisions came about. Various States and environmental groups were in the course of litigation with the EPA to force them to include GHGs in new/existing NSPS. As part of two settlement agreements to end the litigation, the EPA agreed to include GHGs in NSPSs for electricity generators and petroleum refineries. Read the settlement agreements here.

So in addition to the current and no doubt forthcoming PSD litigation and the new chapter of the decades-old Texas v. EPA battle, there will be lots of discussion around NSPS and layered over all of this will be a congressional attempt to block any EPA action. For Canadian emitters, the key here is the fact that the US is poised regulate GHGs from new, modified and existing sources using middle to low stringency performance (read intensity) standards, primarily based on energy efficiency improvements rather than ‘step-change’ technology improvements. There might even be a push for emissions trading, making the US picture eerily similar to Canada’s 2007 Turning the Corner plan.  Now this is all tempered with a new Republican-led Congress in the US that is bent on stopping (or at least delaying) the EPA from acting on climate change regulations so stay tuned for more updates as things progress.

US takes another step towards climate change regulation (UPDATED)

Yesterday the US EPA released its much anticipated guidance on determining the ‘best available control technologies’ (BACT) for reducing greenhouse gas emissions, read it here.

The guidance is part of an attempt by the EPA to regulate GHG emissions from stationary sources under the existing provisions of the Clean Air Act (CAA). Specifically, the EPA interprets the CAA as requiring the inclusion of GHG emissions in the requirements under the Prevention of Significant Deterioration (PSD) program. The PSD program requires new and modified sources to be built using BACT. A new or modified source applies to the State and shows that it is built using BACT. The State then issues a construction permit allowing the source or modification to be built. The permit contains an emissions limit that the source must operate under once built.

The guidance released yesterday is two part: (1) general guidance on determining if a source is covered and how to determine BACT for that source; and, (2) source category specific guidance on GHG emissions control technologies. The sector specific guidance was released for 7 sectors: Coal-fired Electricity Generation; Industrial, Commercial, Institutional Boilers; Pulp and Paper; Iron and Steel; Cement; Petroleum Refineries; and, Nitric Acid Plants.

The guidance helps permitting authorities (States) and regulated sources to determine BACT. In the first instances, BACT determinations may be difficult and will be likely settled in court. There is a good chance that if the PSD GHG requirements become a reality (which is not certain in any way given the lawsuits currently filed), there still won’t be a source operating under a PSD GHG emisssions limit until well into 2012 if not later. While the guidance does list out and discusses a variety of emission control technologies, the focus by far is on energy efficiency… and rightfully so, there are few if any add-on technologies that reduce GHG emissions (with perhaps a hopeful placeholder for carbon capture and storage) the BACT is not supposed to be cutting edge experimental tech – its supposed to be proven in practice and applicable to the specific source. This, combined with the fact that PSD only applies to new and modified sources, does not bode well for achieving the US’s 2020 target for a 17% reduction in emissions from 2005 levels.

This is the latest in a long-running  series of steps that the EPA has taken towards regulating GHGs under the existing provisions of the CAA.  Here is a quick history…

April 2007 – The US Supreme Court determined that GHGs are ‘air pollutants’ as defined in the CAA and order the EPA to determine whether or not GHG emissions from new motor vehicles cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare, or whether the science is too uncertain to make a reasoned decision. (Massachusetts v. EPA)

July 2008 – The EPA released its Advanced Notice of Proposed Rulemaking on regulating GHGs under the CAA outlining possible courses of action and seeking public comment.

December 2008 – The EPA Administrator issued a memo that interprets how and when the PSD requirements for GHG emissions are triggered (aka Trigger/Timing Rule) — EPA interprets the PSD provisions as requiring the inclusion of GHGs in the program as soon as other CAA requirements for GHG emissions (i.e. regulations on GHG emissions from vehicles) come into force. The final memo was confirmed earlier in 2010.

December 2009 – The EPA issued 2 findings: (1) that GHGs threaten the public health and welfare of current and future generations; and, (2) that GHG emissions from new motor vehicles and new motor vehicle engines contribute to the greenhouse gas pollution which threatens public health and welfare. These findings are a statutory requirement for the EPA to regulate emissions from mobile sources under s.202 of the CAA.

May 2010 – The EPA released its final rule ‘tailoring’ the PSD thresholds (aka Tailoring Rule). The rule adds a second tier of thresholds to the existing thresholds set out in the CAA. This second tier is required to limit the application of PSD GHG requirements to only the largest sources.

May 2010 – The EPA finalized regulations on light duty vehicles (aka Tailpipe Rule). These regulations are the first instance of GHGs being regulated under the CAA. The EPA has interpreted the CAA as requiring the PSD program to include GHGs on the date that the light duty vehicle regulations come into force (January 2, 2011).

Again, there is no certainty that the EPA will be successful in its attempt here to regulate GHGs under the PSD program of the CAA. There are court challenges that question almost every decision that the EPA has made here, and the arguments against the EPA are strong. If a court issues a stay (halting the EPA’s action) the matter may take years to resolve… maybe Congress will have something substantive figured out by then! UPDATE: The District Court of Appeals unanimously rejected the challengers’ motion to stay… read the decision here. So barring any congressional action to block EPA authority, the EPA will introduce GHG requirements under the PSD program on January 2, 2011. But by no means is the court battle over. The case will now be heard on its merits and some think that the EPA is still in trouble… read an opinion here. Expect this case to last well into 2011 if not longer.